Chapter outline

Economic factors Growth strategy Basic Economic system Industry National Income and per capita income Human Resources

Economic Environment
Economic Environment refers to all those

economic factors which have a bearing on the functioning of a business unit. Economic factors are : Growth strategy- Growth of India was based on the soviet model. The state emerged both as the mobilzer of savings as well as an important investor and owner of capital.

Economic Environment
State was the primary agent of economic

change. Private sector activities strictly controlled and regulated. Foreign trade had a relatively small role due to the belief that trade was biased against developing countries and primary producers and the conviction that export prospects were limited.

Economic Environment
The growth strategy was subjected to

criticism during the late 80s when the era of liberalization was set in motion.

Economic Environment
2. Basic Economic systems Capitalism Philosophy of individualism. Believes in private ownership of all agents of

production. Welfare state concept has been developed in recent years. Welfare state is a modification of capitalism that provides for state

Economic Environment
Intervention whenever certain deficiences

occur. Socialism The tools of production are to be organized, managed and owned by the government with the benefits accruing to the public. A strong public sector Agrarian reforms

socialism
Control over private wealth and investment National self reliance are the other planks of

socialism.
Communism-It goes beyond socialism to

abolish private property . The state would own and direct all instrumenta of production.

Strengths of capitalism
Capitalism- encourages individual initiative. Allows the market forces to have a free play Promotes a competitive spirit. Directs scarce resources to profitable uses.

`capitalism
But capitalism results in Gross inequalities of income, recurrence of trade cycles because of free

play of market forces. Exploitation of the poor by the rich and the corrupt influence of vested interests over the state.

capitalism
Capitalism results in wastage of resources. has a devastating effect on the environment. People in capitalist societies earn more and

indulge in excessive and wasteful expenditures on consumer durables and luxuries.

communism
Major weakness of communism is the denial

of individual freedom. It assumes total commitment of people to work and to contribute to the countrys welfare but this has not been forthcoming from people in the communist countries. Communist leaders did not set themselves as good examples.

communism
Communist economies have failed to achieve

economic growth. Communist leaders did not set themselves as good examples. Communism has been obsessed with the rights of workers leading to a tendency to strike work.

Mixed economy
India has chosen mixed economy as its

economic philosophy which closely resembles socialism. It admits the existence of private enterprises along with public ownership.

Economic planning
A mixed economy is necessarily a planned

Economy. We have been having economic planning since 1951 to achieve four important long term objectives. 1. Increase production to the maximum possible extent to achieve a higher level of national income.

Economic planning
2. Achieve full employment. 3. Reduce inequalities of income and wealth. 4. set up a socialist society based on equality

and justice and the absence of exploitation.

Industry
During the mid 1960s, India was ahead of the

Asian Tigers in respect of industrial base. But the administrative controls held the country behind the Tigers. India has potential to become a global player in industrial sector.

Industry
For India to become a global player the

companies need to adopt a Global mind set to build scale economies. Achieve cost reduction Acquire market access rapidly . Strengthen design and innovation skills Master the ability to manage a world-class pool and organisation.

Industry
Manufacturing clusters need to be

encouraged. Labor laws need to be reformed .

National income and per capita income

The aggregate flow of goods and services

represents the total income earned by factors of production employed during the year called the national income or national product. National income indicates whether the economy is developed and the overall environment is favorable for business growth.

Human resource
people provide ready market for goods

produced and services rendered market for goods produced and services rendered by business establishments. People constitute one of the factors of production.

registered the following developments.

Huge investments have been made towards

infrastructure. The outsourcing boom has vastly contributed towards Indias richness.e.g.IT, engineering, pharmaceuticals, engineering design. Increasingly, Indian corporate sector is exploiting global opportunities.

Indian companies have become better pay

masters. Economic reforms have ensured ample supplies of everything, ending the perennial scarcities of old days. Low import duties have ended the smuggling of gold, synthetics, and electronic goods. The black market premium on foreign exchange is gone.

Recent developments
New technology has spread fast and has

revolutionized the capital market, facilitating dematerialization of shares and giving India an electronic exchange.