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  • 1. UNIT 1:POLITICAL ENVIRONMENT ANDECONOMIC SYSTEMSBusiness EnvironmentBE/POL ENV & ECO SYS 1
  • 2. Economy• “the wealth and resources of a community,especially in terms of the production andconsumption of goods and services”BE/POL ENV & ECO SYS 2
  • 3. Economic Systems• Economic activities take place within theframework of an economic system.• An economic system is the socio economicand political framework within which aneconomy functions.• The choice of economic system is influencedby:political, social, historical or ideologicalconsiderations.BE/POL ENV & ECO SYS 3
  • 4. Problems faced by Economy• What goods and services must be producedand in what amount?• How and where should the production beorganized so as to produce these goods andservices?• Are the countries resources fully utilized?• How to allocate the available resources amongproduction units?BE/POL ENV & ECO SYS 4
  • 5. Problems faced by Economy• How should be the resultant output bedistributed?• What proportion of goods produced shall becapital and consumption?BE/POL ENV & ECO SYS 5
  • 6. Market or Capitalist Economy• A free enterprise economy is feature ofcapitalism.• A free enterprise aims at :– Free trade– Freedom of choice in consumption– Freedom of choice in production– Freedom of occupationBE/POL ENV & ECO SYS 6
  • 7. Features of Market Economy• Private Property• Consumer Sovereignty• Freedom of Enterprise• Enlightened self interest• Profit Motive• Competition• Existence of Markets and PricesBE/POL ENV & ECO SYS 7
  • 8. Features of Market Economy• Absence of Central Plan• Limited Government• Active Entrepreneurship• Class Conflict• Use of Advanced Technology• Specialization based on Division of labour• Extensive use of moneyBE/POL ENV & ECO SYS 8
  • 9. Market EconomyMerits• Automatic functioning• Leads to greater efficiency andincentive for hard work• Higher rate of capitalformation and growth• Economic Development andprosperity• Optimum utilization ofresources• System of reward and penaltyDemerits• Too materialistic• Class Conflict• Social Injustice andInequality• Human welfare ignored• Economic instability andunemployment• Misallocation of resources• MalpracticesBE/POL ENV & ECO SYS 9
  • 10. Planned or Socialist EconomyFeatures ofPlannedEconomyPublicownership ofpropertyCentralPlanningAuthorityGrowingrole ofpublicSectorEconomicequalityof pplEquality ofopportunitySocialwelfare andsecurityClasslessSocietyState is finalarbiter of allissuesBE/POL ENV & ECO SYS 10
  • 11. Planned EconomyMerits• Social Justice• Rapid Development• Rational outlook andscientific temperament• Avoids pitfalls of marketeconomy• Better allocation ofresources• Improvement in productiveefficiencyDemerits• Extensive centralisation andbureaucratisation• Equality of opportunity andequitable distribution insocialism is a myth• Kills private initiative andenterprise• Lacks consumer sovereignty• Slow and lethargicBE/POL ENV & ECO SYS 11
  • 12. Mixed Economy• Co-existence of private and public sector• Nationalisation of basic industries• Reduction of inequalities of income• Provision of social welfare measures• Promotion of economic development throughplanned efforts• Resource allocation through the price systemand government directionsBE/POL ENV & ECO SYS 12
  • 13. Mixed Economy• Government control and regulation of theprivate sector• Consumer Sovereignty is protected butgovernment controls production ,consumption and distribution• Government is committed to the promotion ofpublic welfare and protection of labor and thepoor and the marginalizedBE/POL ENV & ECO SYS 13
  • 14. Mixed Economy• Prices are determined by market forces butproducts of public sector are governed byadministered prices• Control of monopolyBE/POL ENV & ECO SYS 14
  • 15. Indian Economy• Achievement of faster economic growth• Best allocation of Resources• Balance between the Private and PublicSectors• The establishment of a welfare state• Heavy Capital investment through plannedeffortBE/POL ENV & ECO SYS 15
  • 16. Indian Economy…The Lackings• Undue emphasis on growth of public sector• Inefficiency of both the sectors• Ineffective control of the private sector• Economic Fluctuations• Failure to solve demographic andunemployment problems and inflation• Extensive and corrupt bureaucracyBE/POL ENV & ECO SYS 16
  • 17. Economic Reforms of India• 3 pillars of economic reforms in India–Liberalisation–Privatisation–GlobalisationBE/POL ENV & ECO SYS 17
  • 18. Liberalisation• Delicenscing• Corporatisation of PSU• Shifting of products and industries fromadministered pricing mechanism• Freedom to PSU to access capital marketsBE/POL ENV & ECO SYS 18
  • 19. Privatisation• Divesture• Denationalisation• Opening up of core sectors earlier reserved forpublic sector to private investment(roads ,ports, insurance, power transmission,telecommunications, etc)BE/POL ENV & ECO SYS 19
  • 20. Globalisation• Reduction in scope of restrictive canalised trade• Increase in FDI in number of areas• Sustained reduction in custom duties on numberof import items• Free import of large number of open generallicence• Simplification, rationalisation and standardisationof number of export-import procedures anddocumentationBE/POL ENV & ECO SYS 20
  • 21. Growth and DevelopmentBE/POL ENV & ECO SYS 21GROWTH DEVELOPMENTUni-dimensional Multi-dimensionalIncome Based Standard Of LivingEconomy Society
  • 22. Assignment• ADVISABLE TO DO ASSIGNMENT;FINAL CALL YOUYOURSELF HAVE TO TAKE.• ASSIGNMENT IS GIVEN FOR UNDERSTANDINGTHE SYLLABUS AND CLEAR DIFFICULTIES ;IF ANY .• Give detailed information on following points:– GDP– GNP– NDP– NNPAlso mention the figures available for FY 2012-13(TIP : for figures refer, http://www.indiabudget.nic.in)BE/POL ENV & ECO SYS 22