Business Studies Part I
Business Studies Part II

Economic Environment in India

ECONOMIC ENVIRONMENT IN INDIA: 

Various Macro-level Factors of Economic Environment in India

  1. Stage of economic development of the country.
  2. The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
  3. Economic policies of the Government, including industrial, monetary and fiscal policies.
  4. Economic planning, including five year plans, annual budgets, and so on.
  5. Economic indices, like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balance of payments, etc.
  6. Infrastructural factors, such as, financial institutions, banks, modes of transportation communication facilities etc.

The Constituents of Economic Environment of Business in India at the time of Independence

  1. The Indian economy was mainly agricultural and rural in character.
  2. About 70% of the working population was employed in agriculture.
  3. About 85% of the population was living in the villages.
  4. Production was carried out using irrational, low productivity technology
  5. Communicable diseases were widespread, mortality rates were high and there was no good public health system.Key Aspects of the Economic Planning in India After Independence
    1. Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty.
    2. Become self-reliant and set upa strong industrial base with emphasis on heavy and basic industries.
    3. Reduce inequalities of income and wealth.
    4. Adopt a socialist pattern of development— based on equality and prevent exploitation of man by man.

    NEW INDUSTRIAL POLICY OF 1991
    Three Major Componenets of New Industrial Policy of 1991

    1. Liberalisation
    2. Privatisation
    3. Globalisation

    Disinvestment definition
    Disinvestments refers to transfer from public sector enterprises to the private sector through dilution of state of the Government in the public enterprise

    The Broad Feature of New Industrial Policy, 1991

      1. The Government reduced the number of industries under compulsory licensing to six.
      2. Many of the industries reserved for the public sector under the earlier policy, were dereserved. The role of the public sector was limited only to four industries of strategic importance.
      3. he share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
      4. Automatic permission was now granted for technology agreements with foreign companies.
      5. Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.

    Liberalisation 
    These economic reforms signalled the The new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the greater role to the private economies of the world Indian business and industry from all sector in the nation building leading towards the unnecessary controls and restrictions.
    Simplifying procedures for imports and exports.
    Key initiatives of the government:

        1. Abolishing licensing requirement in most of the industries except a short list .
        2. Freedom in deciding the scale of business activities
        3. Removal of restrictions on the movement of goods and services.
        4. Freedom in fixing the prices of goods and services.
        5. Reduction in tax rates and lifting of unnecessary controls over the economy.
        6. Making it easier to attract foreign capital and technology to India.

    Privatisation
    The new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the greater role to the private economies of the world Indian business and industry from all sector in the nation building leading towards the
    unnecessary controls and restrictions. process and a reduced role emergence of a cohesive to the public sector.
    Key initiatives of the government:

        1. Adopted the policy of planned disinvestments of the public sector.
        2. Decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction.

    Globalisation
    These economic reforms signalled the The new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the greater role to the private economies of the world Indian business and industry from all sector in the nation building leading towards the unnecessary controls and restrictions. process and a reduced role emergence of a cohesive to the public sector. global economy.
    Key initiatives of the government:

      1. Import liberalisation and export promotion through rationalisation of the tariff structure and reforms with respect to foreign exchange.
      2. Increased level of interaction and interdependence among the various nations of the global economy.

The major components of New Economic Policy of 1991 that are being referred to are as follows:

  1. Liberalisation: These economic reforms signalled the end of the licence-pemit-quota raj and were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions.
    “Moreover, before the initiative was launched, the limits of foreign direct investment in various sectors had been relaxed. The application for licences was made available online and the validity of licences was increased to three years. Various other norms and procedures were also relaxed by the government.”
  2. Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. “The ZED model aims to make India the manufacturing hub of the world and prevent the products developed in India from being rejected by the global market.