Introduction to Business

Environment

ECONOMIC STRUCTURE OF
INDIA

ECONOMIC STRUCTURE OF INDIA

Mixed economy of India consists of public and private sector. Policy on the
public sector has been guided by the Industrial Policy Resolutions 1956 and 1991
which gave a strategic role in the economy. India was based agrarian economy
with weak industrial base, low level savings and investments and near essence of
infrastructural facilities.
Public sector
The object of accelerating the pace of eco-development and the political
ideology, gave the public sector a dominant role in the industrial development of
the nation led to rapid growth of the State Owned Enterprises (SOEs) sector in
India.

These enterprises came to cover a wide spectrum of activities in basic

strategic industries like steel, coal, minerals and metals, petroleum, heavy
engineering, chemicals, fertilizers and pharmaceuticals etc., on one hand and
consumer goods, trading and marketing activities, transportation, services,
contracts and consultancy services, tourist service, financial services,
development of small industries etc., on the other.

Objectives:
It was promoted as an instrument for implementation of the govt.s
socio-eco policies.

ECONOMIC STRUCTURE OF
INDIA

Underdeveloped economy

the current status of indian economy is a result of its evolution over the years. Indian is still an
underdeveloped economy despite significant progressive changes over the six decades since
independence.
1.

2.

3.

Low per Capita Income: according to world development indicateors database of the
world bank. The GNP per capita incomeis one of the lowest in the world. It stood at
$950 in 2007 as per the world bank data released on 24 th april 2009. as against $860
for pakistan.
India's per capita income(nominal) was $ 1570 in 2013, ranked at 120th out of
164 countries by the World Bank, while itsper capita incomeon purchasing power
parity (PPP) basis was US$ 5,350, and ranked 106th. Other estimates forper
capitaGross NationalIncomeand Gross Domestic Product vary by source.
Inequalities in Income distribution: wealth is distributed in few hands

ECONOMIC STRUCTURE OF
INDIA

Objectives:
It was promoted as an instrument for implementation of the govt.s
socio-eco policies.

To help in the rapid eco growth and development and

industrialization of the country and create the necessary
infrastructure for economic development.
To earn return on investment and thus generate
resources for development.
To promote redistribution on income & wealth
To create employment opportunities
To promote balanced regional development
To assist the development of small scale and ancillary
industries
To promote import substitution, save and earn foreign
exchange for the economy.

Growth & performance of

public enterprise

Public Sector Ratnas

Govt. in 1997 July unfolded its strategy to grant autonomy to come PSUs on an experimental basis
was to select some vanguard PSUs to support them in their drive to become global giants. After in-depth
interministerial discussions. Nine PSUs were selected. These are Navaratnas.

Bharath Heavy Electricals Ltd (BHEL)

Bharath Petroleum Corporation Ltd (BPCL)

Hindustan petroleum Corporation Ltd (HPCL)

Indian Oil Corporation Ltd (IOC)

Indian Petrochemicals Corporation Ltd (IPCL)

National Thermal Power Corporation Ltd (NTPCL)

Oil & Natural Gas Corporation Ltd (ONGC)

Steel Authority of India Ltd (SAIL)

Videsh Sanchar Nigam Ltd (VSNL)

GAIL (Gas Authority of India Ltd) & MTNL ( Mahanagar Telephone Nigam ltd) were given same status. All
these were given freedom to incur.

Capital expenditure

Decide on joint venture

Set up subsidiaries/officers board

Enter into technology & strategic alliances

Raise funds from capital markets (international & domestic)

Enjoy substantial operations and managerial autonomy

Economic Planning in India:

From Mixed to a Market
economy.

Economic Planning in India: From Mixed to a Market economy.

There are three types of economy.
Market Economy - Where consumers decide which goods and services they
want and businesses provide these. Most businesses in a market economy are
privately owned. The USA is an example of a market economy.
Command economy - Where the government owns most businesses. The
government decides what and how much will be produced. Russia and China
used to have planned economies.
Traditional economy - an economic system in which people make economic
decisions based on customs and beliefs that have been handed down from one
generation to the next.
A mixed economy is another kind of economic system which blends elements
of the 3 above economic systems. It is not one of the 3 major types of
economies.

A Pure Market Economy

No government involvement in economic

decisions
The government lets the people answer the
three basic economic questions

What? Customers decide through their

purchases
How? This is left up to the individual business
BUT- a business must be profitable
Who? People who have money can buy more
this encourages hard work and investments

A Pure Command
Economy

The Government controls the factors of

production and makes all the decisions The
government is responsible for answering the
three economic questions

What? One person ( a dictator) or a group of

government officials (central planning committee)
decide what is to be produced
How? The government owns all the factors of
production and makes all the decisions about
production
Who? The government decide who receives what
is produced in the economy

Mixed Economies

Some government involvement

through mandatory laws and
regulations that businesses follow

The government provides social

programs for those who need help

Labor Laws, Minimum Wage

Medicare, welfare

All economies are mixed they are

classified based on how much the
government is involved in the process

Economies In Transition

The breakup of the Soviet Union is the

best example of a country changing
from a Command Economy to a Market
Economy
State owned industries have been
privatized (government owned
businesses are sold to private citizens)
Today even socialist countries are
selling some of their government
owned businesses to individuals

Economic Planning in India:

From Mixed to a Market
economy.

Structure of Economy

The contributions of sectors like primary (agri), secondary

(industrial) and tertiary sectors form structure of economy.

As economy develops share of primary sectors in

development, employment & GDP declines. Manufacturing also
declines. The service sector is largest & fast operating sector. They
contribute upto 60% of world GDP and is less in developed countries

Economic Planning in India:

From Mixed to a Market
economy.

Performance

Although we have failed to achieve targets & 30% still under

poverty line. India is one of the largest industrial powers in the
world and has the 3rd largest stock of scientific manpower.

Characteristics of Industries

Until 1991, the development of the private sector was under

strict Govt. control, was exercised through industrial licensing. Low
like the Industries (Development & Regulation) Act, the Companies
Act gave enormous control over the management and control of
functioning of the industries. The M.R.T.P. Act controlled merges,
amalgamations and takeovers.

Characteristics of Industries

Characteristics of Industries

Until 1991, the development of the private sector was under strict
Govt. control, was exercised through industrial licensing. Low like the
Industries (Development & Regulation) Act, the Companies Act gave
enormous control over the management and control of functioning of the
industries. The M.R.T.P. Act controlled merges, amalgamations and
takeovers.

Characteristics of Industries
The Development of Industries

Private Sector

Public Sector

Joint Sector has been promoted to facilitate the utilization

of the resources and talents of the private sector and
function with social orientation of public sector.

Co-op. sector: Made progress in industries like sugar, cotton

textiles and fertilizers. Growth of this sector promotes
industrial democracy & discourages concentration of
economic power in few hands.

Village & small industries Not given the deserving

importance. Some units are reserved for them and the
products too.

Characteristics of Industries

Import Substitution & Export Contribution

Import substitution assumed importance after the second plan.
In early decades of planning, considerable import substitution took
place in many important areas in capital goods, organic chemicals,
pharmaceuticals, dyestuffs etc. The Export Policy Resolution of 1970
emphasized the importance of development and expansion of
export oriented production. The Import Substitution Industrializaiton
Strategy (ISI) followed in India has had adverse effects. The high
protection from foreign competition, resulted in high costs, poor
quality, indifference towards consumers and lack of innovativeness.

In mid 1950s Jute & cotton industries (textiles) were denied

foreign exchange and with liberalization non-essential industries
were given import substitution.
The import restrictions, high costs and poor quality also very
severely affected Indias export performance.

Characteristics of Industries

Capacity Utilization

Under utilization amounts to wastage of scarce resources, leads to cost-push inflation. Creates demand supply
imbalance, affect balance of trade, employment, saving and investment. Under utilization of Industrial policy is due to
factors like as planned excess capacity calculated to meet the demand in the foreseeable future, tech invisibilities
which may create capacity in excess [present demand]; and initial testing troubles of new industries which is incapable in
the developing economy.

Regional Disparities: Removal Third Plan

Large investments were made in backward areas. Incentive system was introduced in 4 th plan. The backward area
development by industrialization is not given importance.

An Evaluation

Since 1951, large investments have been made in building up capacity over a wide spectrum of industries. India is a
major industrial power in world.
7th year revival states:

Substantial diversification

Produce large & broad range of industrial products

Self-reliance [achieved]

Capital & basic goods contribute 1 of total value added in manufacturing

Virtual sufficiency achieved

Between 1950 & 2000, IP increased 22 fold.

GDP increased by 13% in 1950-51 to 25%, 50 years of industrialization

Technological, managerial, operational development

Development of skilled manpower was also achieved.

Agricultural Sector

Agriculture contributes over 1/4th of Indias GDP, provides 2/3rd of

population livelihood, supplies raw materials for number of industries
and contributes 1/5th of the export earnings. The rural market accounts
for well over 55% of the demand of FMCGs.

Phases of Development: From 6th Plan

Phases
I 1900-1947 No growth, 0.3% annual growth, stagnation period
II. 1950-1980 Advance in modernization of agriculture, due to steps
taken in
Technology based on scientific research
Wide range of services
Growth annually by 2.8%, 1967-68 to 1978-79.
Eighties Attention to markets & trading investments frame work to
minimize the handicaps of small & marginal farmers and maximize
benefits of agri.

Agricultural Sector

Expansion

Central & state Govts. Role in development of agriculture sector.

Irrigation: Increases agri productivity & employment opportunities.
Union & State governments are developing the area under irrigation by
executing major, medium and minor irrigation projects and exploiting
ground water potential. Rural electrification programs (energisation of
pumpsets) is also being implement. This supports industries like cement,
steel etc., Irrigation electrification (aluminium cables, steels etc) will also
increase demand for pumpsets, PVC pipes, agri implements, insecticide
and pesticides and fertilizers, banks etc.

Private sectors like [farmers organization, voluntary bodies and general

public] are taking interest in irrigation. Ground water development is
done through own financing or institutional financing or both.
States like Maharashtra, Madhya Pradesh and Andrapradesh have
initiated the action for privatization of irrigation projects through
projects like build own operate (BOO) or build own operate transfer
(BOOT) or Build own lease (BOL) basis.

& Development of Inputs & Services:

Agricultural Sector

Agricultural Marketing:

6th Plan Three essential elements of marketing.

Support prices adjusted with cost of production to ensure fair returns to the farmers.

Arrangements for procurement of agri produce at support prices, if prices decrease.

The organization look after this is Food Corporation of India, The Cotton Corporation of India, The
Jute Corporation of India and the Co-operatives with the National Agricultural Cooperative
Federation of India (NAFED) as their Apex Organization.

Directorate of Marketing & Inspection

Functions are to give advice to the Central & State Govts., Promote grading and
standardization, market practices, extension, research, cold storage.

Agmark for Cotton, vegetable oils, ghee, cream, butter, rice and wheat.

Regulated Markets:

The regulated market is a market where the activities are regulated by law and is meant for
dealing in a specific commodity or group of commodities.

The main objective of the regulated market is to save the farmers from the exploitation of
unscrupulous market intermediaries and to ensure a fair price for their produce.

Co-op Marketing: It was started to help small farmers, grains & agri products are graded and
stored and sell at advantageous price. Marketing is the important function of co-op. marketing.

Agricultural Sector

Agri Price Policy:

Is decided by The Commission for Agri Costs and Prices (CACP).

Agri commodities like wheat and paddy have procurement prices fixed for them.

Minimum Support Prices: for barley, gram, moong, urad, mustard, ground nut, sunflower seed, soyabean
and cotton (kapas).

Statutory Minimum Price: for sugarcane, jute and tobacco.

ECONOMIC ROLE OF
GOVERNMENT

Entrepreneurial Role

Entrepreneurial role includes establishing and operating business

enterprises and bearing risks. A number of factors such as socio-political
ideologies, dearth of private entrepreneurship, absence of inadequate
competition in certain segments and resultant exploitations of consumers
have contributed for the growth of state owned enterprises.

Planning role

State plays an important role as planner.

Thank You