ECONOMIC ENVIRONMENT AND INDIA : ECONOMIC ENVIRONMENT AND INDIA By-Santosh kumar ; Sem-4 Roll no.- 0911002280; Course-
PGPM Study centre- Guwahati ; IMT GHAZIABAD 1 WHAT IS ENVIRONMENT ? : WHAT IS ENVIRONMENT ? Environment refers to sum total of all factors-economic, political, social and cultural; which are external and beyond the control of individual business enterprises and their management.
Environment furnishes the macro contents, while business firm is micro unit. 2 WHY ENVIRONMENT IS IMPORTANT FOR BUSINESS ENTERPRISES : WHY ENVIRONMENT IS IMPORTANT FOR BUSINESS ENTERPRISES Because business firms have to operate in a given environmental factors.
Environmental factors are numerous and complex.
Some of these factors are static while others are dynamic.
Environment may be local, national and international and generally vary from place to place.
Business environment is effected by economic and non economic factors. 3 COMPONENTS OF ENVIRONMENT : COMPONENTS OF ENVIRONMENT A business firm cannot operate in vacuum ; it has to work in certain economic and non-economic constraints. So it may be divided in two parts—
The micro environment or Immediate environment.
The macro environment or exterior environment 4 MICRO ENVIRONMENT FACTORS : MICRO ENVIRONMENT FACTORS Customers
Regulatory agency 5 MACRO ENVIRONMENT FACTORS : MACRO ENVIRONMENT FACTORS ECONOMIC ENVIRONMENT FACTOR
Political environment and role of the government
The international environment 6 WHAT IS ECONOMIC ENVIRONMENT? : WHAT IS ECONOMIC ENVIRONMENT? Economic environment is those economic factors which have their affect on the working of the business.
Economic environment is affected by other micro and macro environmental factors. 7 VARIOUS FACTORS OF ECONOMIC ENVIRONMENT : VARIOUS FACTORS OF ECONOMIC ENVIRONMENT Economic system
Monetary policy [interest rate]
Currency exchange rate
Level of income
Distribution of income and growth
International economic environment
Economic legislations 8 WHAT IS ENVIRONMENT SCANNING? : WHAT IS ENVIRONMENT SCANNING? Environment scanning means an analysis of environmental variables. It is a step towards corporate planning.
A manager can use SWOT analysis method for business environmental analysis
SWOT means :- S=strength; W=weakness; O= opportunities; T=threats 9 DESCRIPTION OF ECONOMIC FACTORS : DESCRIPTION OF ECONOMIC FACTORS 10 Continue…… : Continue…… CAPITALIST:- A capitalist system is one where resources are allotted through the price or price mechanism.
SOCIALIST:- In this system resources are allotted not through price mechanism but through a central plan.
MIXED ECONOMY:- This is the system between the capitalist and socialist where free enterprises and regulated sectors work side by side. 11 FEATURES OF CAPITALIST SYSTEM : FEATURES OF CAPITALIST SYSTEM Market mechanism are the key factors that regulate the capitalist economy
Freedom of choice of occupation
Freedom to save and invest
Limited role of government
Zero budgeting may be adopted 12 FEATURES OF SOCIALIST SYSTEM : FEATURES OF SOCIALIST SYSTEM Government ownership
Restriction on consumption
Restriction on occupation
Fixation of wages and prices
Distribution of income
Planned economy is adopted in this system 13 FEATURES OF MIXED ECONOMY : FEATURES OF MIXED ECONOMY It is also called controlled economy.
Keynes is the originator of mixed economy.
Mixed economy operates through a combination of planning and pricing.
In mixed economy government play four important roles:--
 Regulatory roles
 Promotional roles
 Entrepreneurial roles
Planning role 14 ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/A : ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/A ECONOMIC POLICY:- By the use of fiscal policy, industrial policy, annual budget, price control and export- import laws etc-government play a crucial regulatory and supervisory role in the economic system.
ECONOMIC GROWTH:- The economic performance and growth of economic industry and business is heavily dependent on growth of economy as a whole 15 ECONOMIC FACTORS AFFEcTING ECONOMIC ENVIRONMENT/B : ECONOMIC FACTORS AFFEcTING ECONOMIC ENVIRONMENT/B INTEREST RATE:- Lower interest provide healthy opportunity for business while higher interest rate is unhealthy for business.
CURRENCY EXCHANGE RATE:- It is very much useful for import-export regulation as per economy and business requirement. 16 ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/C : ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/C ECONOMIC LEGISLATION:- Beside the different kind of policy governments of different countries frame various legislations which regulate and control business and economy.
LEVEL OF INCOME:- Any improvement in level of income will drive positive way in business. 17 ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/D : ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/D ECONOMIC CONDITION:- Any improvement in the economic condition such as standard of living, purchasing power largely effects the size of market.
DISTRIBUTION OF INCOME & WEALTH:-If income and wealth is distributed in such a way that it decentralized from few people to many then it increases demand in market. 18 ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/E : ECONOMIC FACTORS Affecting ECONOMIC ENVIRONMENT/E INTERNATIONAL ECONOMIC ENVIRINMENT:-It includes international economic condition, economic trends in policy and certain others economic-political environment that has a great impact on business for export-import policy, technology transfer and raw material etc. 19 Slide 20: BRIC Report, Goldman Sachs “I have never seen India so dynamic, vibrant and full of business opportunities”. - Dan Scheinman, Cisco System Inc. as told to Business Week, August 2005 “We came to India for the costs, stayed for the quality and are now investing for innovation”. John RedwoodEconomic Competitiveness Policy Group, UK “India is now truly a land of opportunity”. Jack WelchGeneral Electric “India is a developed country as far as intellectual capital is concerned”. Peter Loescher President and Chief Executive Siemens By 2032, India will be among the three largest economies in the world. Why India? – Quote Unquote Travyn Rhall,ACNielsen “The Indian market has two core advantages - an increasing presence of multinationals and an upswing in the IT exports”. Craig BarrettIntel Corporation “India has evolved into one of the world's leading technology centers“. Mr Paul de Voijs Managing DirectorVolvo Car India “India is a very exciting market and the luxury car segment is growing exponentially here”. 20 FUTURE PROSPECT OF INDIAN ECONOMY/A : FUTURE PROSPECT OF INDIAN ECONOMY/A As per Goldman sachs report that there are 50,000 crorepatis in India and the number are still increasing.
India will be economic super power by 2050.
Indian economy has highest saving rate in the world.
Indian economy is mostly domestic demand driven that insulated India up to a large extent from global economic turmoil.
As per recent estimate India will surpass china by 2020 as a fastest growing economy. 21 FUTURE PROSPECT OF INDIAN ECONOMY /B : FUTURE PROSPECT OF INDIAN ECONOMY /B Indian economy is directed towards inclusive growth that is majorly driven by affirmative action like- Food security bill, MGNREGA, Right to education bill, employment guarantee bill etc. 22 FAVORABILITY TOWARDS COUNTRY’S BUSINESS ENVIRONMENTS : FAVORABILITY TOWARDS COUNTRY’S BUSINESS ENVIRONMENTS “very favorable” view of business environment
Lowest “unfavorable” rating Ch In Mx Pl Br Ru Ch In Mx Pl Br Ru Source: Edelman’s India Media Audit, 2004 23 Trends of international economic environment & Indian economy : Trends of international economic environment & Indian economy 24 MAJOR CAUSES FOR CHANGING ECONOMIC ENVIRONMENT IN 1991 : MAJOR CAUSES FOR CHANGING ECONOMIC ENVIRONMENT IN 1991 Increase in fiscal deficit
Deficit in Balance of Payment
Mounting Inflation Rate
Failure of the public sector
Industrial licensing policies
Gulf Crisis 25 CHANGES IN ECONOMIC POLICY & GROWTH RATE : CHANGES IN ECONOMIC POLICY & GROWTH RATE Since independence India followed democratic socialism-
Growth rate - 1951-56 - 3.6%
War period - 1961 -66 - 2.5%
Always remains below - 5%
1991 onwards liberalized economic policy
8th plan 1992-97 - 6.7% growth rate
and then afterwards always remains more than 5%.
In 2008 India was world’s second fastest growing major economy even in world slowdown-2009 - growth rate 6.1% 26 Bank Rate : Bank Rate 27 MAJOR CHANGES IN INDIAN ECONOMIC ENVIRONMENT/A : MAJOR CHANGES IN INDIAN ECONOMIC ENVIRONMENT/A Indian market environment changes from seller market to buyer market.
1991 NEP[ new economic policy] can be said as a bloodless revolution in Indian economy or RENAISSANCE of Indian economy.
Private participation was allowed in many government monopoly areas like- telecommunication, air travel, power, infrastructure etc.
Many reserved areas for small scale industry were opened for all. 28 MAJOR CHANGES IN INDIAN ECONOMIC ENVIRONMENT/B : MAJOR CHANGES IN INDIAN ECONOMIC ENVIRONMENT/B Many Indian MNC’s like Tata, Airtel, Hindalco, Suzlon etc started acquiring foreign industries.
Microfinance companies started growing in rural and suburban areas.
PPP [public private partnership] & PPCP[public private community partnership] are the new emerging concept of Indian economy.
Every budget has price hike in pretext of fiscal discipline.
Hindu growth rate of India converted into second fastest growing economy of world 29 INDIAN ECONOMIC ENVIRONMENT IN PHASES : INDIAN ECONOMIC ENVIRONMENT IN PHASES Phase I: Open foreign investment policy; relatively open trade policy until the late 1950s; investment licensing began to tighten only towards the late 1950s, early 1960s
Phase II: Socialism struck with vengeance
Phase III: Ad hoc liberalization during 1975-79, 1980-84 and then more substantial liberalization during 1985-86 and 1986-87.
Phase IV: 1991 onwards -systematic liberalization 30 Sector Wise Growth Rate : Sector Wise Growth Rate 31 CURRENT MAJOR CHALLENGES OF INDIAN ECONOMIC ENVIRONMENT/A : CURRENT MAJOR CHALLENGES OF INDIAN ECONOMIC ENVIRONMENT/A High inflationary pressure compelling for tighten monetary policy that result in higher cost for money.
Reforms in banking sectors is still slow.
Interest rate is still very high compare to developed world .
Deficit financing (currently 10.3% of GDP)
Lower per capita income (1070$-143th in world)
80% population lives on less than 2$ PPP 32 CURRENT MAJOR CHALLENGES OF INDIAN ECONOMIC ENVIRONMENT/B : CURRENT MAJOR CHALLENGES OF INDIAN ECONOMIC ENVIRONMENT/B Political hurdle in implementing economic policy.
Inclusive Growth with economic stability
From last ten years Indian growth rate is 7 to 9 percent while agriculture growth rate is between 2 to 3 percent.
So agriculture sector required major reforms and thrust to keep pace of growth. 33 CHANGING ENVIRONMENT AND GROWTH : CHANGING ENVIRONMENT AND GROWTH The Indian economy provides a revealing contrast between how
individuals react under a government-controlled environment and how
they respond to a market-based environment. Evidence suggests that
recent market reforms that encouraged individual enterprise have led
to higher economic growth in that country. 34 INDIA:INFLATION IN RECENT YEAR : INDIA:INFLATION IN RECENT YEAR 35 FACTORS FOR HEALTHY BUSINESS ENVIRONMENT : FACTORS FOR HEALTHY BUSINESS ENVIRONMENT 36 These major areas required reforms : These major areas required reforms Direct tax –higher tax rate, slab rate is illogical
Indian civil services- required performance linked promotion;
Land reform- government prices are not market based, highly controlled.
Labour law- required industry friendly.
Subsidy- not reaching to needy people.
Public sector management- required more empowered, transparent and less political interference for better control. 37 HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY/A : HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY/A Reduce unnecessary interference of bureaucracy
Reduce fiscal deficit
Market should be made competitive
Growth with equity both in respect of region and class necessary
Improvement in infrastructure.
Industrialization should not be hampered for political advantages 38 HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY/B : HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY/B Market should be made more informative in either case product or service.
Logistic, communicational and infrastructural facility for rural area required major support.
Facilities for professional and technical training to be increased .
Cost for money for business sector to be made cheap by reforms in banking sector. 39 HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY/C : HOW INDIAN ECONOMIC ENVIRONMENT CAN BE MADE HEALTHY/C Indian economy to be made more regulated less controlled and maximum transparency in policy.
Indian economy now needs second major reforms particularly in agriculture, retail & banking sectors.
Better food inflation plan
Higher growth rate required for agriculture. 40 THANK YOU PRESENTED BY : THANK YOU PRESENTED BY Santosh kumar: M.A[Economics]
Course-PGPM ; SEM-4
SESSION –JAN 2009
STUDY CENTRE-GUWAHATI 41