BASIC NOTES ECONOMIC ENVIRONMENT INDEPENDENCE IN INDIA

BASIC NOTES ECONOMIC ENVIRONMENT INDEPENDENCE IN INDIA

ECONOMIC ENVIRONMENT IN INDIA

Here, we are trying to provide you some information about basic notes for business studies, business studies tutorials, CBSE business studies notes for class 11 class 12 BBA MBA BCA MCA B.com M.com BMS MMS PGDM Entrepreneur other further management classes.

Today, we are going to provide a business environment in management notes CBSE study material for commerce students to become great and better managers in any organization. Previously, we studied BASIC NOTES NATURE SIGNIFICANCE OF MANAGEMENT BUSINESS STUDIESBASIC NOTES CHARACTERISTICS OF MANAGEMENT BUSINESS STUDIESBASIC NOTES CONCEPTS OF MANAGEMENT BUSINESS STUDIESBASIC NOTES OBJECTIVES OF MANAGEMENT BUSINESS STUDIESBASIC NOTES FEATURES NATURE OF MANAGEMENT BUSINESS STUDIESBASIC NOTES IMPORTANCE OF MANAGEMENT BUSINESS STUDIESBASIC NOTES LEVELS OF MANAGEMENT BUSINESS STUDIESBASIC NOTES SIGNIFICANCE PRINCIPLES OF MANAGEMENT BUSINESS STUDIESBASIC NOTES TAYLOR SCIENTIFIC MANAGEMENT for BUSINESS STUDIESBASIC NOTES PRINCIPLES OF SCIENTIFIC MANAGEMENTBASIC NOTES TECHNIQUES OF SCIENTIFIC MANAGEMENT, BASIC NOTES FAYOL PRINCIPLES OF MANAGEMENT, BASIC NOTES INTRODUCTION OF BUSINESS ENVIRONMENT, BASIC NOTES FEATURES THE NATURE OF THE BUSINESS ENVIRONMENT, BASIC NOTES IMPORTANCE OF THE BUSINESS ENVIRONMENT, BASIC NOTES DIMENSIONS OF THE BUSINESS ENVIRONMENT, BASIC NOTES ECONOMIC ENVIRONMENT INDEPENDENCE IN INDIA

BASIC NOTES ECONOMIC ENVIRONMENT INDEPENDENCE IN INDIA
BASIC NOTES ECONOMIC ENVIRONMENT INDEPENDENCE IN INDIA

The economic environment in India consists of several macro-level factors related to the means of production and distribution of wealth which affect business and industry.

Economic Environment is the most major dimension of Business Environment. The major factors of economic factors which have an impact on Businessmen are:

Stage of Economic Development

The Business policies of a developed country are different from the policies of developing countries (Stage of economic development of the country).

Economic Structure

There are mainly three economic structures Capitalist, Socialist and Mixed Economic structure. In a capitalist state, the businessman takes decisions by giving priority to the profit motive. In a socialist state, the government gives in priority to the welfare of people, and in nixed economy i.e., India’s Business Policies are taken by considering both i.e., profit and welfare of people. In a mixed economy, there is co-existence of Public and Private sectors.

The economic structure is in the form of a mixed economy which (recognizes the role of both public and private sectors).

Economic Policies

Important economic policies which influence Business decisions are Industrial Policy, Fiscal Policy, Monetary Policy. Liberal Policies offer more opportunities to businessmen whereas strict policies put constraints.

In short, Economic policies of the Govt., including industrial, monetary, and fiscal policies.

Economic Planning

It includes five years plan, Annual Budget, Growth Plan, etc. These plans also influence business decisions.

Economic planning, involves five-year plans, annual budgets, and so on.

Economic Indicators

The common economic indicators are National Income, Per Capita Income, Rate of Saving and Investment, Balance of Payment, Value of Export-Import, GDP, GNP, etc.

Economic indices, like national income, distribution of income, rate, and growth of GNP, per capita s income, disposal personal income, rate of savings and investments, the value of exports and imports, balance of payments, and so on.

Infrastructure

It refers to basic services or setup necessary to carry on activities in a country i.e., Transportation, Communication, Banking, Financial Institutions, etc.

Infrastructural factors such as & financial institutions, banking sectors, mode of transportation, mode of communication facilities, and so on.

THE ECONOMIC ENVIRONMENT OF INDIA SINCE INDEPENDENCE

Business enterprises in India do realize the importance and impact of the economic environment on their work. Practically, all annual company reports presented by their chairpersons dedicate considerable attention to the general economic environment prevailing in the country and an assessment of its impact on their companies.

The economic environment of business in India has been steadily hanging mainly due to government policies. There has been tremendous change in the Indian economic environment since Independence. The main features of the Indian Economic Environment at the time of Independence were:

  • The dominance of the Agriculture Sector.
  • Almost three-fourths of the total population was occupied in the Agriculture Sector (About 70% of the working population was employed in agriculture).
  • About 85% of the population was living in villages.
  • Use of outdated technology in production (Production was moved on using irrational, low-productivity technology).
  • Lack of a public health system (There was no good public health system).
  • Widespread communicable diseases (Communicable diseases were widespread & mortality rates were high).

Immediately after Independence to solve the economic problems, the government of India made some plans and policies. The main feature of these plans and policies was giving importance to the public sector. Many areas were reserved only for the public sector and curtailing the role of the Private sector, many restrictions were put on the private sector.

To solve economic issues of our country, the government grabbed several steps including control by the State of some industries, central planning, and reduced importance of the private sector.

The main objectives of new Development Plans were:

  • Rapid Economic growth.
  • Rise in the standard of living.
  • Reduce unemployment and Poverty.
  • Attaining Self Reliance.
  • Reduce Regional Imbalance.
  • Reduce Inequalities of income and wealth.
  • Adopting a Mixed Economy pattern by giving more importance to socialist patterns.

Under the economic planning, the government provided a lead role to the public sector for infrastructure industries whereas the private sector was broadly assigned the duty of developing the consumer goods industry. At the same time, the government forced several restrictions, regulations, and controls on the working of private sector enterprises. India’s experience with economic planning has produced mixed results. In 1991, the economy faced a serious foreign exchange crisis, a high government deficit, and a rising trend of prices despite bumper crops.

The government could not get very positive effects by making new economic policies that gave more importance to the public sector and imposing restrictions on Private Sector. As a result, India faced a foreign exchange crisis in 1991. The fiscal deficit also raised to 7% (approx.) of GDP was a warning situation.

The Major Crisis of 1991

The main crises faced by India in 1991 were:

  • The fiscal deficit reached 7% (approx.) of GDP.
  • Internal Debt rose to 50% of GDP.
  • Negative Agricultural growth.
  • The inflation rate rose to 13-14%.
  • Depreciation in the value of Rupee.
  • Fall in foreign exchange reserves.
  • The creditworthiness of International financial institutions of our country fell.
  • Negative Balance of Payment.
  • India was on the verge of becoming a defaulter. As a result, SBI and RBI sold and pledged gold in the international market.

To save the country from the serious situation of crisis Government of India took some reform measures.

Reform Measures

  • Reducing fiscal deficit.
  • Notice of New Industrial Policy in July 1991.
  • Abolition of Industrial Licensing Policy.
  • Amendment of MRTP Act.
  • Open entry for the private sector to areas that were earlier reserved for the Public sector only.
  • Rise in foreign equity holders from 40% to 51%.
  • Fixing up of Foreign Investment Promotion Board (FIAB)
  • Introduction of India Development Bond scheme to get funds from abroad.
  • To check the devaluation of the rupee a stand-by credit was negotiated from IMF.
  • Getting back of gold which was earlier pledged.
  • Measures to control the import and encourage export.
  • Introduction of Liberalized Exchange Rate Management System (under this there was the dual exchange rate)
  • Elimination of import license on capital goods.
  • Abolition of Export duty.

The major and most important measure taken by the government as economic reform was the announcement of the New Industrial Policy in July 1991.

The main components of the new Economic Policy 1991 are :

Delicensing

Six industries only were kept under the licensing plan. (The state decreased the number of enterprises under mandatory licensing to six).

Entry to Private Sector

The role of the public sector was restricted to only four industries, the rest of all industries were started to the private sector also.  (Many of the enterprises reserved for the public sector under the earlier policy, were deserved. The role of the public sector was restricted only to four industries of strategic importance).

Disinvestment

It was carried out in many public sector industries. (Disinvestment was carried out in the case of many public sector industrial companies.)

Liberalization of Foreign Policy

The limit of foreign equity was upraised to 100% in many activities like NRI including foreign investors who were permitted to invest in Indian companies. (Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and, in many activities, 100 % Foreign Direct Investment (FDI) was permitted.)

Liberalization in Technical Area

Automatic consent was given to Indian companies for signing technology agreements with foreign firms (Automatic permission was granted now for technology agreements with worldwide companies.).

Setting up of Foreign Investment Promotion Board (FIPB)

This board was set up to promote and bring foreign investment to India.

Setting up of small-scale Industries

Various benefits were offered to small-scale industries.

Suitable measures were taken to remove barriers in the way of growth and increase of industrial units of large industrial houses. The small-scale sector has promised all help and accorded due recognition.

In essence, this policy has sought to liberate industry from the shackles of the licensing system (liberalization), drastically reduce the role of the public sector (privatization) and encourage foreign private participation in India’s industrial development (globalization).

Liberalization refers to the end of license, quota, and various including limitations à controls which were put on industries before 1991.

The economic reforms that were presented aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions. They signaled the end of the license-permit-quota raj. The Indian organizations got liberalization in the following way:

Liberalization

  • Abolishing licensing requirements in most of the industries except a shortlist (Abolition of license except in few).
  • Freedom in determining the scale of business activities i.e., no limitations on increase or decrease of business activities (No limitation on extension or reduction of business activities).
  • Removal of limitations on the movement of goods and services. (Removal of limitations on the movement of goods and services (Right to movement of goods and services).
  • Freedom in fixing the costs of goods services (Freedom in fixing prices).
  • Reduction in tax rates and lifting of unnecessary controls over the economy (Freedom in fixing the prices of goods and services).
  • Simplifying procedures for imports and exports (Liberalization in import and export).
  • Making it easier to attract foreign capital and technology to India (Easy and simplifying the procedure to attract foreign capital in India).

Privatization

Privatization refers to giving a greater role to the private sector and reducing the role of the public sector. To execute the policy of privatization government took the following steps:

  • Disinvestment of public sector i.e., transfer of public sector enterprise to the private sector
  • Fixing up of Board of Industrial and Financial Reconstruction (BIFR). This board was set up to regenerate sick units in public sector enterprises suffering loss.
  • Dilution of Stake of the Government. If in the process of disinvestment, the private sector gets more than 51% shares then, it results in a transfer of ownership and management to the private sector.

In simple words, that was a refusal of the development strategy pursued so far by Indian planners. To conclude, the rule re-defined the part of the public sector in the New Industrial Policy of 1991, adopted the policy of planned disinvestments of the public sector, and settled to refer the loss-making and sick industries to the Board of Industrial and Financial Reconstruction. The term disinvestments used here means to transfer in the public sector companies to the private sector. It results in dilution of the stake of the Government in the public company. If there is a dilution of Government possession beyond 51 %, it would result in a transfer of possession and management of the enterprise to the private sector.

Globalization

It refers to the integration of various economies of the world. Till 1991 Indian government was following strict policy regarding import and foreign investment regarding licensing of imports, tariff, restrictions, etc. yet after the new policy government adopted the policy of globalization by taking the following measures:

  • Import Liberalization. The government removed many restrictions on the import of capital goods.
  • Foreign Exchange Regulation Act (FERA) was followed by Foreign Exchange Management Act (FEMA)
  • Rationalization of Tariff structure
  • Abolition of Export duty.
  • Reduction of Import duty.

As a result of globalization, the physical borders and political borders remained no barriers for business activity. The entire life becomes a global village. Globalization involves greater communication and relationship among the different nations of the global economy.

Globalization means the integration of the various economies the world-leading towards the emergence of a cohesive global economy. Till 1991, the Government of India had happened a policy of strictly adjusting imports in value and volume words. These regulations were with respect to licensing of imports, tariff restrictions, and quantitative restrictions.

The new economic reforms aimed at trade liberalization were directed towards import liberalization, export promotion through rationalization of the tariff structure, and reforms concerning foreign exchange so, the country does not continue to separate from the rest of the world. Globalization involves an increased level of interaction and interdependence among the different countries of the global economy.

Physical geographical gaps or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market. That has been made possible by the rapid advancement in technology and liberal trade policies by Governments. Through the system of 1991, the government of India moved the country to this globalization pattern.

Here, we are trying to provide you some information about basic notes for business studies, business studies tutorials, CBSE business studies notes for class 11 class 12 BBA MBA BCA MCA B.com M.com BMS MMS PGDM Entrepreneur other further management classes.

Today, we are going to provide a business environment in management notes CBSE study material for commerce students to become great and better managers in any organization. Previously, we studied BASIC NOTES NATURE SIGNIFICANCE OF MANAGEMENT BUSINESS STUDIESBASIC NOTES CHARACTERISTICS OF MANAGEMENT BUSINESS STUDIESBASIC NOTES CONCEPTS OF MANAGEMENT BUSINESS STUDIESBASIC NOTES OBJECTIVES OF MANAGEMENT BUSINESS STUDIESBASIC NOTES FEATURES NATURE OF MANAGEMENT BUSINESS STUDIESBASIC NOTES IMPORTANCE OF MANAGEMENT BUSINESS STUDIESBASIC NOTES LEVELS OF MANAGEMENT BUSINESS STUDIESBASIC NOTES SIGNIFICANCE PRINCIPLES OF MANAGEMENT BUSINESS STUDIESBASIC NOTES TAYLOR SCIENTIFIC MANAGEMENT for BUSINESS STUDIESBASIC NOTES PRINCIPLES OF SCIENTIFIC MANAGEMENTBASIC NOTES TECHNIQUES OF SCIENTIFIC MANAGEMENT, BASIC NOTES FAYOL PRINCIPLES OF MANAGEMENT, BASIC NOTES INTRODUCTION OF BUSINESS ENVIRONMENT, BASIC NOTES FEATURES THE NATURE OF THE BUSINESS ENVIRONMENT, BASIC NOTES IMPORTANCE OF THE BUSINESS ENVIRONMENT, BASIC NOTES DIMENSIONS OF THE BUSINESS ENVIRONMENT, BASIC NOTES ECONOMIC ENVIRONMENT INDEPENDENCE IN INDIA

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