Business studies class 12 – Economic Environment in India
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Economic Environment in India
Every business operates within the framework of the national economic system. It is the nature of the economic system that determines the economic environment of the business. The Economic environment comprises the structure of economic systems, economic infrastructure, economic policies of the government, factor endowment and the nature of markets. Thus, economic environment comprises a number of factors or forces which influence the activities of the business in several ways.
Economic environment since independence
Some of the socioeconomic indicators of the state of the Indian economy at the time of independence in 1947 included the following:
- The dominance of agricultural sector in the Indian economy.
- About 85% of the population were living in the villages.
- About 70 % of the total working population was engaged in the agriculture
- The outdated and obsolete technology used in the production of goods and services.
- Lack of good health system for the public.
Later on, for the development of the country, the government launched five-year plans and industrial policy.
Economic reforms and new Industrial policy, 1991
In order to introduce economic reforms, the central government announced a new industrial policy in July 1991 which sought to liberate the industry from the industry from the shackles of the licensing system, drastically reduce the role of the public sector, and encourage foreign-private participation in industrial development. It was a landmark in the history of economic development of India.
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The main objectives of the new economic policy are:
- Rapid economic growth and a higher standard of living.
- Becoming self-reliant.
- Reduce inequalities of income and wealth.
- Reduce unemployment and poverty.
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The term liberalization means freeing the Indian business and industry from all unnecessary government controls and restrictions. Liberalization of the Indian industry has taken place with respect to:
- Abolishing licensing requirement in most of the industries.
- Freedom in deciding the scale of business activities.
- Freedom in fixing the prices of goods and services.
- Reduction in tax rates.
- Simplifying procedures for imports and exports.
- Making it easier to attract foreign capital and technology to India.
The term privatization means giving a greater role to the private sector in the nation building process and drastically reducing the role of the public sector. To achieve this, the government adopted the policy of planned ‘disinvestments’, which means transferring the public sector enterprises to the private sector. If there is a dilution of the stake of the government ownership beyond 51 percent, it would result in the transfer of ownership and management of the enterprise to the private sector. IPCL, Gail, IBP, Balco etc. are the examples of disinvestment.
Globalization means the integration of our economy with the world economy. It aims at:
- Import liberalization
- Export promotion
- Foreign exchange reforms
- The aim of globalization is to look upon the world as a ‘global village’ which would allow the free flow of goods, capital, technology, and labor between different countries.
Globalization involves an increased level of interaction and interdependence among the various nations of the global economy.