undefined | unit 3 the economic environment

UNIT III

The Economic Environment

Question Bank

Q1) Define Economic environment with its component.

A1) Economic environment:

It is macroeconomic indicators that strategists study to influence their decisions. These indicators shape the health and well-being of the economy. These are determinants of a company's ability to make a profit and generate wealth. More important is the maximization of wealth, as it means maximizing profits and returning them to investments that generate more income.

The components of the economic environment are:

I. General economic situation:

The general economic situation that prevails in the economy is a determinant of economic prosperity and community well-being. These economic conditions are variables in which the amount of national income, per capita income, economic resources, income and wealth distribution, and economic development determine people's economic prosperity.

Revenue and its distribution determine the business outlook and therefore the business strategy. In an economy where it is low and per capita is relatively low, demand will decline. This pessimistic situation does not attract business people who invest in and execute manufacturing and marketing activities.

On the other hand, in an economy where the income of the economy is increasing, it leads to more and more investment and entry into industrial and marketing activities. In India, the backbone of the Indian economy, the Middle, is ready to increase income and invest in business.

Even NRI considers it beneficial to invest surplus income in this way, helping the Indian economy to become stronger and thus benefit from profits.

II. Economic system:

The economy is an arrangement that encourages the use of free resources to generate and distribute income, based on some accepted economic philosophies. Economy around the world is widely linked to Kabbalism, socialism, and communism as a hybrid economy called a pure variety or mixed economy.

India is the best example of a mixed economy, with the benefits of capitalism and socialism in one focus, eliminating the disadvantages of pure socialism or capitalism.

Capitalism gives maximum economic freedom in the management of economic activity, socialism talks about maximum domination by the state, mixed economy is freedom and the role of the state in which both the public and private sectors support each other. I have.

The collapse of the mighty nation formed in the early 20th century had to kick a bucket for a period of 100 years. Today, the Soviet Union is divided into small nations that were one of the greatest forces in the world linked to socialist ideology.

III. Economic policy:

It is the appropriate and timely economic policies adopted and implemented by the government that determine the fate of the state and its citizens. Think about India before 1991 and now. The Indian economy is on the verge of collapse and foreign exchange reserves were enough to pull another eight days.

It was a change in personality as a political leader and the brain behind them, together they freed India from control and opened the Indian economy to the whole world.

Private and public sector businesses that worked under the umbrella of protection were set up and faced the challenge of changing competition. Which foreign companies couldn't replace them as Indian players became global players?

IV. Economic growth:

Economic growth or development is the rise and maintenance of per capita income for all individuals who are members of the economy. It is economic growth, which represents increased consumer spending and lower pressure in the industrial sector, that provides more opportunities and enables businesses to withstand the severity of the threat. Other methods also apply. Declining economic growth and lower consumer spending will increase pressure and reduce profitability.

V. Interest rate:

Interest rates affect the demand for goods and services in the economy when they are purchased through borrowing. If interest rates are low, the demand for the product may be durable or non-durable. This gives Philip to a growing industry.

The opposite is true if the rate is high. Today, R.B.I is emerging at lowest interest rates to increase demand for durable and non-durable consumer goods, which will bring the Indian economy out of pessimism and tomorrow's rut.

The cost of capital also depends on interest rates. When they are getting capital at the lowest rates, the companies will encourage all companies to have ambitious plans and strategies in the case of borrowed funds.

VI. Exchange rate:

Exchange rates represent currency conversions to other currencies. It may be hard or soft. In 1991, the Indian Rupee was devalued to make Indian products cheaper in the global market to boost Indian exports. This was a great opportunity for all Indian exporters to export more commodities and reserves and earn forex.

Today, foreign exchange reserves are at a record high of Rs 200 billion, at least costly to boost quality production. Indian exporters do so only if they regularly understand and implement three strategies for export cost, export quality, and export volume. Therefore, it is the exchange rate that determines the fate of a country.

Q2) Write the Objectives of Economic Planning in India.

A2) Objectives of Economic Planning in India:

The following were the first objectives of economic planning in India:

Economic Development: this is often the most objective of designing in India. Economic Development of India is measured by the rise in Gross Domestic Product (GDP) and Per Capita Income

Increased Levels of Employment: a crucial aim of economic planning in India is to raised utilise the available human resources of the country by increasing the utilization levels.

Self Sufficiency: India aims to be self-sufficient in major commodities and also increase exports through economic planning. The Indian economy had reached the take-off stage of development during the third five-year plan in 1961-66.

Economic Stability: Economic planning in India also aims at stable market conditions additionally to the economic process of India. this suggests keeping inflation low while also ensuring that deflation in prices doesn't happen. If the wholesale price level rises very high or very low, structural defects within the economy are created and economic planning aims to avoid this.

Social Welfare and Provision of Efficient Social Services: The objectives of all the five-year plans also as plans suggested by the NITI Aayog aim to extend labor welfare, welfare for all sections of the society. Development of social services in India, like education, healthcare and emergency services are a part of planning in India.

Regional Development: Economic planning in India aims to scale back regional disparities in development. for instance, some states like Punjab, Haryana, Gujarat, Maharashtra and Tamil Nadu are relatively well developed economically while states like Uttar Pradesh, Bihar, Orissa, Assam and Nagaland are Others like Karnataka and Andhra Pradesh have uneven development with world class economic centers in cities and a comparatively less developed hinterland. Planning in India aims to review these disparities and suggest strategies to scale back them.

Comprehensive and Sustainable Development: Development of all economic sectors like agriculture, industry, and services is one among the main objectives of economic planning.

Reduction in Economic Inequality: Measures to scale back inequality through progressive taxation, employment generation and reservation of jobs has been a central objective of Indian economic planning since independence.

Social Justice: This objective of designing is said to all or any the opposite objectives and has been a central focus of designing in India. It aims to scale back the population of individuals living below the poverty level and supply them access to employment and social services.

Increased Standard of Living: Increasing the quality of living by increasing the per capita income and equal distribution of income is one among the most aims of India ’s economic planning.

Q3) What is an economic system?

A3) An economic system is a system of production, resource allocation, and distribution of goods and services within society or a particular geographical area. This includes a combination of different institutions, institutions, entities, decision-making processes, and consumption patterns that make up the economic structure of a particular community. In this way, the economic system is a kind of social system. Production mode is a related concept. Every economic system has three basic questions. It's what you produce, how and in what quantity you produce, and who receives the results of your production.

Research on economic systems includes how these various institutions and institutions are linked to each other, how information flows between them, and the social relationships within the system (ownership and management structure).

Analysis of the economic system has traditionally focused on the dichotomy and comparison of market and planned economies, and the distinction between capitalism and socialism. Since then, the classification of economic systems has expanded to include other topics and models that do not comply with traditional dichotomy. Today, the dominant form of economic organization at the world level is based on a market-oriented mixed economy.

Economic systems are a category of Journal of Economic Literature classification codes that include research on such systems. One area that crosses them is the comparative economic system, which includes the following subcategories of different systems.

Planning, coordination, and reform.

Highly productive companies. Factors and product markets; prices; population.

Public Economics; Financial Economics.

Gross national income, products, and spending. Money; inflation.

International trade, finance, investment, assistance.

Consumer economics. Welfare and poverty.

Performance and outlook.

Natural resources; Energy; Environment; Area studies.

Political Economy; Legal System; Property Rights.

Q4) Define Mixed economy.

A4. There is no exact definition of "mixed economy". Theoretically, it may refer to an economic system that combines the three characteristics of public and private property of an industry, market-based allocation with economic planning, or free market with state interventionism.

In reality, a "mixed economy" generally refers to a market economy that has a significant public sector alongside substantive national interventionism and / or the dominant private sector. In fact, the mixed economy is even more drawn to one end of the spectrum. Notable economic models and theories that have been described as "mixed economies".

In countries like India, both the public and private sectors play a very effective relative role. The 1948 and 1956 industrial policy resolutions set out special provisions to secure spheres for both the public and private sectors, taking into account their relative role in the country's economy.

Industrial policy in 1948 laid the foundation for a mixed economy by classifying Indian industry into four major categories, involving both the public and private sectors. The 1956 Industrial Policy Resolution then categorized Indian industry into three schedules: the state-owned sector, gradually the state-owned sector and the private sector.

Following this policy of 1956, the state promoted private sector industry by securing infrastructure facilities such as electricity, transportation and other services and providing non-discriminatory treatment to both public and private owners. Promoted and encouraged.

In addition, the Philosophy and Action Plan for the Promotion of the Public Sector was incorporated into the 1948 and 1956 Industrial Policy Resolutions. The 1956 Industrial Policy Resolution properly observed that: As with the need for planned development, all industries of basic and strategically important or utility service nature must be in the public sector. Other industries that are essential and require investment on a current state-only scale.

The situation can be provided, but it must also be in the public sector. Therefore, the state must take direct responsibility for the future development of the industry over a wider area. Therefore, the 1948 and 1956 Industrial Policy Resolutions articulate the relative roles of both the public and private sectors in countries like India.

While analyzing the role of the public sector in the Indian economy, then Indian Prime Minister Indira Gandhi correctly stated: Of social benefit or strategic value, rather than providing a commercial surplus to raise additional economic funding primarily in the interests Beloment. "

The 1977 Industrial Policy Statement also referred to the role of the public sector, thereby stipulating the expansion of the role of the public sector, especially with respect to strategic goods of a fundamental nature. The public sector was also encouraged to develop auxiliary industries and transfer technical and management expertise to the small and domestic industry sectors.i

Given the growing problem of public sector illness, industrial policy in 1980 reaffirmed confidence in the public sector, despite the recent decline in confidence in the public sector. Therefore, this policy has introduced a time-limited program to restore the efficiency of public sector operations through an effective management system.

Again, industrial policy in 1980 attempted to integrate industrial development in the private sector by promoting the concept of economic federalism. Cottage unit as much as possible.

The new industrial policy of 1991 radically liberalized the industrial policy itself and drastically deregulated both the public and private sector industries in line with the liberalization movement introduced in the 1980s. The new industrial policy of 1991 recognizes the relative roles of both the public and private sectors of the economy and frees both of the two industrial sectors from the spider web of unnecessary bureaucratic control, India. Introduced liberalization measures to integrate the economy with the world economy. Freed indigenous private enterprises from the restrictions of MRTP law in order to achieve sustainable growth of productivity and employment and also to achieve international competitiveness.

In addition, the new policies have also prepared to reduce the burden on the most public sector companies in their expansion programs. Public sector policies have helped them rebuild potentially viable units. In addition, priorities for future public sector enterprise growth will also be rescheduled to include products with critical infrastructure, mineral and oil exploration and development, technological development and strategic considerations.

Thus, it was found that the various industrial policies developed by the government since 1948 fully take into account the relative roles of both the public and private sectors in the Indian economy. Therefore, these policies have made serious attempts to develop both the public and private sectors at the same time and sustainably.

Q5) What is the relative role of Indian public sector?

A5) Relative role of Indian public sector:

The public sector has occupied a worthless place to achieve systematic and systematic development in developing countries like India. In a country like India, which suffers from multifaceted problems, the private sector is not in a position to make the necessary efforts to develop different sectors at the same time.

Therefore, in order to provide the support needed for a country's development strategy, the public sector provides the minimum impetus needed to guide the economy on a path of self-sustaining growth. Thus, it is now well recognized that the public sector plays an active role in national industrial development by laying a sound foundation for the industrial structure in the early stages of development.

Below are some of the important relative roles of the public sector in the economic development of countries like India.

(A) Promote economic development at a rapid pace by bridging the gap in the industrial structure.

(B) Promote appropriate infrastructure for economic growth.

(C) Conducting economic activity in strategically important areas of development where the private sector can distort the spirit of national goals.

(D) Check monopoly and concentration of power in the hands of a few people.

(E) Promote balanced regional development and diversify natural resources and other infrastructure facilities in these underdeveloped regions of the country.

(F) Close the gap in income and wealth distribution by bridging the gap between the rich and the poor.

(G) Create and enhance ample employment opportunities in various sectors by making large investments.

(H) Achieve independence with various technologies according to requirements.

(I) Eliminate dependence on foreign aid and technology.

(J) Enforce social control and regulation through various financial institutions.

(K) Manage delicate sectors such as distribution systems and rationally allocate rare imported goods. And

(L) Reduce balance of payments pressure by promoting exports and reducing imports.

Q6) What is the relative Role of Indian Private Sector?

A6) Relative Role of Indian Private Sector:

India, a mixed economy, assigns great importance to the country's private sector to achieve rapid economic development. The government has fixed specific roles in the private sector in the areas of industry, trade and services.

India's most dominant sector, agriculture and other related activities such as dairy, livestock and poultry, is completely under the control of the private sector. In this way, the private sector manages the entire agricultural sector, thereby playing an important role in providing the entire food supply to millions of people.

In addition, most of the industrial sector engages in non-strategic and light sector, various consumer goods and non-durable consumer goods, electronic and electrical products, automobiles, textiles, chemicals, foods, light industrial products. Etc. are produced. It is also under the control of the private sector. Private sector players play an active role in the development and expansion of the aforementioned industrial groups. Moreover, the development of small-scale and domestic industries is also the responsibility of the private sector.

Finally, the private sector also plays a relative role in the development of higher education institutions. The private sector manages the entire service sector and provides different types of services to the general public.

The entire domestic wholesale and retail industry is also managed by the private sector in the most rational way. In addition, most of the transportation, especially road transportation, is also managed by the private sector.

With the progress of liberalization of the Indian economy in recent years, the private sector has been assigned much greater responsibility in various areas of economic activity.

Q7) State the importance of industrialization.

A7) Industrialization is the most important requirement for the country's rapid economic development. Industrialization not only helps the development of industry, but also promotes the social sector of agriculture, trade, transportation, foreign trade, services and economy. It improves employment opportunities, national income, per capita income, and the standard of living of the masses. Therefore, industrial policy is needed to establish a healthy tradition of industrialization and to guide, regulate and manage industrial development (if necessary). A country's industrial policy is influenced by the ideologies and principles of the governments involved. Industrial policy helps the country to prosper in a self-sufficient manner by laying the structure and foundation for industrial development. Therefore, the government's industrial policy. It must be clearly defined, clear and progressive. You also need to adhere to it and take it seriously.

Q8) Define industrial policy with its need, purpose and importance.

A8) Industrial policy refers to such a formal declaration by the government through the general policies of the industry adopted by the government. It will be published. Any industrial policy can initially consist of two main parts: the ideology of government. This is the governing rules and principles that determine the nature of industrialization and, secondly, provide a particular framework behind existing ideologies. In this way, industrial policy is a comprehensive concept that provides policy guidance and overview for the establishment and functioning of industry.

Need, purpose and importance of industrial policy:

The necessity, purpose and importance of industrial policy can be explained in the following points.

Development of natural resources:

Industrial policy helps to fully develop the country's natural resources. Helps identify, collect, and use resources properly. It promotes an increase in the national income of the country.

2. To boost industrial production:

The main purpose of industrial policy is to increase the country's industrial production. It provides the impetus for the rapid development of the industry and the growth of the industry.

3. Modernization:

Industrial policy encourages modernization to increase industrial production and productivity. It envisions the use of modems and the latest production technology in the industrial sector. Promote maximum production with minimum production cost.

4. Balanced industrial development:

Industrial policy envisions a country's balanced industrial development. It also promotes balanced development in various sectors of the economy.

5. Balanced regional development

Industrial policy helps the country to develop a balanced region. Industrial policy may include provisions regarding the provision of facilities or concessions for the rapid development of an industrially backward region / region of a country.

6. Coordination between basic and consumer industries

Balanced development of basic and consumer industries is essential for economic growth. Industrial policy, on the one hand, encourages the development of basic and major industries, and on the other hand, attention is also paid to the development of the consumer industry. Therefore, with balanced and collaborative development of both types of industry, it provides a pace for economic growth.

7. Coordination between small and large industries

Industrial policy plays an important role in the coordinated development of small or domestic and large industries. These industries can help each other through the provisions of industrial policy.

8. Area determination

Industrial policy determines the areas of business under the public and private sectors. Through national industrial policy, we can set the right direction for the private sector.

9. Heartfelt labour-management relations

Comprehensive industrial policy is needed to build a heartfelt relationship between workers and managers. Heartfelt labour-management relations are essential for rapid and sustainable industrialization.

10. Appropriate use of foreign aid / investment

Appropriate industrial policy is supposed to attract foreign capital and entrepreneurs. It helps the country's rapid industrial development. If you think carefully about industrial policy, the disadvantages of "foreign assistance" will be confirmed. Foreign aid can be used for national interests if the country implements appropriate industrial policies.

Q9) Write note on Privatization.

A9) Privatization refers to reducing the role of the public sector by involving the private sector in most activities. The policy reforms announced in 1991 literally stopped the expansion of the public sector, and the private sector recorded rapid growth during the post-liberalization period. The issues of privatization are:

(I) Reduce the number of industries reserved for the public sector from 17 to 8 (later reduced to 3) and introduce selective competition in the reserved areas.

(II) Stop investing in shares of selected public sector industrial enterprises to procure resources and encourage broader participation of the general public and workers in ownership of businesses.

(III) Improving business performance through the Ammo system, which gives management greater autonomy while taking responsibility for specific outcomes. In India, as a result of these steps, India's private sector business has expanded significantly in the post-liberalization phase. You can see the expansion as the total capital of the top 500 private companies has risen from RS. Rs from 1,39,806 rupees in 1992-93. 2,34,751 chlores in 1994-95 (68% increase in just two years).

In other words, it is a reduction in ownership of the owners of state-owned enterprises. Government-affiliated companies can be converted to private companies in two ways:

Due to investment withdrawal

By withdrawal of government ownership and management of public sector companies.

Form of privatization:

Non-state or strategic sale: When 100% government ownership of a productive asset is transferred to a player in the private sector, the act is called non-state.

Partial Privatization or Partial Sale: If the private sector owns more than 50% and less than 100% of the public sector company previously interpreted by the transfer of shares, it is called partial privatization. Here, the private sector owns a majority stake. As a result, the private sector effectively controls the functioning and autonomy of the company.

Deficit privatization or token privatization: When the government stops investing in equity capital in the range of 5-10% to cover the budget deficit, it is called deficit privatization.

Purpose of privatization-

Improve the financial situation of the government.

Reduces the workload of public sector enterprises.

Raise funds from the discontinuation of investment.

Increase the efficiency of government agencies.

Providing consumers with better and improved products and services.

Create healthy competition in society.

Encourage foreign direct investment (FDI) in India.

Q10) Explain Outsourcing as a result of globalization.

A10) Globalization means "integrating" a country's economy with the world economy. This means a free flow of goods and services, capital, technology and labour across borders. To achieve these globalization objectives, the government has adopted a variety of measures, including reducing tariffs, eliminating quantitative restrictions or quotas on imports and exports, promoting foreign investment, and encouraging foreign technology. These measures are expected to achieve higher growth rates, increased employment potential, and reduced regional inequality.

Outsourcing as a result of globalization:

The most important outcome of the globalization process is outsourcing. In the outsourcing model, a company in one country hires an expert from another country to do the job. This was previously done by domestic internal resources.

The best part of outsourcing is the ability to work at lower rates from great sources available from anywhere in the world. Services such as legal advice, marketing and technical support. As information technology has grown over the past few years, outsourcing of contract operations from one country to another has increased significantly. All economic activity has expanded globally as the means of communication have expanded its reach.

Various business process outsourcing companies or call centres have been developed in India that have voice-based business process models. Activities such as accounting and bookkeeping services, clinical advice, banking services and even education are outsourced from developed countries to India.

The most important advantage of outsourcing is that even large multinationals and SMEs have access to superior services at lower rates compared to their own standards. Skills set in India are considered to be the most dynamic and effective in the world. Indian professionals are the best in their work. Low wages and highly skilled professionals make India the most lucrative destination for global outsourcing in the later stages of reform.

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