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
instruments 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 by business

establishments.
People constitute one of the factors of
production.

Huge investments have been made towards

Indian economy has

registered the following
developments.

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 economy has registered the following developments.

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.