The political environment consists of the forces concerning management of public affairs and their impact on business. It includes political conditions in the country and attitude of the government towards businesses and business policy.For example, political unrest and threat to law and order adversely affect confidence of investors and reduce the level of investment in the economy.
Need of studying political environment are:
(i) Political stability builds up confidence among business people to invest in the
long-term projects. But, the instability in politics results in disinvestment.
(ii) The attitude of the government towards business also affects its performance, e.g. if government provides subsidy in the production of cotton garments, it will have positive impact on cotton textile business and vice-versa.