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CH-2
Environment of Business
Economic Environment
Chapter
Economic Environment
Copyright 2007, Vivek Mittal
2 1
Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
Economic Environment
Business is an economic activity that has and will continue to influence mankind the most. Almost every citizen of the world obtain his/her bread and butter from some sort of business. Either he is himself engaged in business or is earning because somebody else is engaged in business. A deeper analysis reveals that the basis of international relations is also business. The impact of business is so pervasive that besides judicial and administrative the third important work any government has to perform, is to regulate business in the national interest. Whether political interests precede or follow economic interest is a debatable issue. A change in the government or change in the system can change the fate of an organization. Behind every political decision there may be economics and
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Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
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Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
ii.
iii. iv. v. vi.
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Freedom of Enterprise
Freedom of Choice by Consumer Profit Motive Competition Importance of Price System
Business Environment Vivek Mittal
Cont.
Copyright 2007, Vivek Mittal
Excel Books
Part-1
CH-2
Socialism
Environment of Business
Economic Environment
General Features of Socialism i. ii. iii. iv. v. i. ii. Social Ownership of Means of Production No Private Enterprise Economic Planning Classless Society Consumer is not sovereign Co- Existence of Public and Private Property Price System and Government Directives
Mixed Economy
iii.
iv. v.
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Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
2 6
Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
Complex Mixed Economy The Indian economy is a complex mixed economic system. It has multiple sectors: Private, Public, Joint Co-Operative, Workers' sectors, etc. Economic factors like prices, inflation, interest rate, etc., are influenced and controlled by both central planning and as well as market forces. India has a multiple mechanism of dual prices, ceiling prices, floor prices, subsidised prices, statutory prices, retention prices, procurement prices, levy prices, and free market prices. In India, there is a complex system of liberal rules, strict regulations, control mechanism, planning, and a host of price regulations. The new economic policy was announced in July 1991, which is of far reaching importance. The Industrial Policy has five important features: 1. Industrial Licensing 2. Foreign Investment 3. MRTP 4. Public Sector Cont. 5. Foreign Technology Agreement Copyright 2007, Vivek Mittal
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Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
IndiaA Mixed Economy In a mixed economy, the government has a positive role to play in the field of economic activity. Some industries may be completely state-owned, some may be privately owned and some may be jointly owned by the state and the private sector. India is regarded as a good example of a mixed economy. Because of the presence of public sector and economic planning in India, some economists prefer to characterise the Indian economy as state capitalism. But state capitalism is the same thing as a mixed economy. The following features (prior to 1991) explain why the Indian economy should be considered a mixed economy: Private Ownership of the Means of Production and Profit-Induced Commodity Production Significant role of market mechanism Big Business Houses Public Sector Cont. Economic Planning Copyright 2007, Vivek Mittal Government as a Regulator
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Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
Changing Face of the Indian Economy Some of the key factors of India's new economy are as follows: 1. India is the fourth largest economy of the world in terms of PPP today. 2. It is an attractive destination for global FDI. Almost all the major MNCs of the world, from GM and GE of USA to Sony and Samsung see their future in India. 3. India is emerging as a global manufacturing hub. More and more companies are establishing their manufacturing unit in India. These include Nokia, Samsung, GM, Hyundai, Posco, Ispat, Lafarge, Holcim, Toyota etc. 4. India is today labelled as the back office of the world. As India is becoming the major outsourcing theater of the world. India commands more than 30% of the worlds outsourcing business. Indian companies are working for almost all the major companies of the world like GM, GE, Microsoft, Oracle, etc. 5. India is also regarded as the customised software factory of the world. Almost all the major software companies of the world have their operations in India. The list includes players like Microsoft, Oracle, HP, IBM, etc. Cont.
Copyright 2007, Vivek Mittal
2 11
Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
India at a Glance
Population ( 2004)
GDP (2003 - 04 estimates) Per capita GDP GDP growth rate (2004-05) Estimated Foreign Exchange Reserves ( As of June 24, 2005) Food Grains Production ( 20 04) Exports ( April -March 2004 - 05) Imports (April - March 2004 - 05) Foreign Debt Foreign Debt as %age of GDP
1.073 billion
US$ 650 billion (approx.) US$ 543 6.9% US$ 138.89 billion 206.4 million tons US$ 79.59 billion
Unemployment rate
9.1%
Sovereign credit ratings
Moodys Standard and Poor Fitch IBCA Average literacy rate FII investment Apr - March (2004 - 2005 ) Apr - March (2003 - 2004 )
Cont.
US$ 11.37 billion US$ 8.90 billion Copyright 2007, Vivek Mittal
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Business Environment
Vivek Mittal
Excel Books
Part-1
CH-2
Environment of Business
Economic Environment
Economic Policies Economic policies formulated and implemented by the government impart
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Business Environment
Vivek Mittal
Excel Books