economic environment and business

ECONOMIC ENVIRONMENT

Nature of Economic Environment

Business is necessarily an economic activity and economic environment exerts a considerable influence on business. Economic environment refers to all those economic factors which have a bearing on the functioning of a business. These include the structure and nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, economic policies etc.

Economic policies include industrial policy, trade policy, foreign exchange policy, foreign investment and technology policy, fiscal policy and monetary policy. Other important factors of economic environment include economic planning, population, growth strategies, infrastructure, economic reforms, per capita and national income etc.

Need for Industrial Policy

1. to correct the imbalance in the development of industries.
2. to direct the flow of scarce resources
3. to prevent the wastages of scarce resources
4. to empower the govt. in regulating private industries based on anational policy
5. to classify industries into public, private and joint sectors
6. to prevent the growth of monopolies
7. to channelise foreign investment

Industrial Policy 1991

The govt. of India announced its new industrial policy on july, 24 1991 which heralded the economic reforms in India. It made drastic changes in the industrial policy by opening up most of the industries for the private sector and substantially dismantling the licensing and entry barriers. The industries were given more freedom on investment and expansion and facilitated easy access to foreign technology and foreign direct investment.

            The important reasons for such major changes in industrial policy are:

1. The deep political and economic crisis and consequent changes in many countries especially in the former USSR.
2. The pressure of World Bank and IMF for restructuring and economic reforms.
3. The encouraging results of liberalization measures already taken in the 1980s in the country, and
4. The crisis in the Balance of Payment position (Forex was just sufficient to meet 2 weeks imports)

The major objectives of the new Industrial Policy are:

1.     To build on the gains already made.

2.     To correct the distortions or weaknesses that may have crept in.

3.     To maintain a sustained growth in productivity and gainful employment  and

4.     To attain international competitiveness.

In pursuit of the above objectives, significant changes have been introduced in the following areas:

·         Industrial licensing

·         Foreign investment

·         Foreign technology agreements

·         Public sector policy and

·         MRTP Act

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