It comprises political parties and their ideology, type of government (single party or multi-party coalition), stability of government, government policy towards business, government policy regarding international business and multinational corporation (MNCs), etc. All these factors influence investment in business activities and also the stability, growth and profitability of business. For instance, the operations of an MNC, Coca Company, were discontinues in India in the late nineteen seventies because of the Government’s policy of restricting the growth of multinational companies in the country. in 1989, the Government allowed another multinational company, Pepsi Cola to enter the Indian market to give boost to the food processing industry. Later, the Industrial policy, 1991 paved the way for entry of multinational corporations into India in a big way.

Stability of Government of the country is also an important factor. Whenever there is political instability in the country, business is affected adversely. It happened in 1999 when Vajpayee Government at the Centre lost the majority support ; the share prices at the stock market crashed immediately.

Several changes have occurred in the political environment in India. One party rule at the centre has given way to coalition government. Similarly, there are coalition governments in serval states also. Creation of new states of Uttrakhand, Chhattisgarh and Jharkhand have affected tourism, transport, and mining industries. The Constitution was amended for the empowerment of Panchayati Raj Institution. This will speed up the process of economic development and give a boost to small scale and cottage industries n the rural areas. Recently, an amendment to the constitution paved the way for 27% reservation for the other backward classes (OBCs) in the educational institutions.

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