economic environment

1. ECONOMIC
ENVIRONMENT
PRESENTED BY “MBA 1ST YEAR”:
ANUBHAV PRIYADARSHI
ABHISHEK PANDEY
PRIYANKA KUSHWAHA
SAMEEN

2. INTRODUCTION
• Environment involves external factors of a
country which has a considerable impact
on the creation and distribution of wealth.
• The demand and supply of a business are
is directly influenced by these econmic
factors. From the financial viewpoint, it
also verifies the country’s viability for
conducting business practices.

3. COMPONENTS OF ECONOMIC ENVIRONMENT
• The major components of economic environment
are as follows:
• Economic Conditions
• Economic Policies
• International Economic Environment
• Economic Legislations
• Economic System

4. ECONOMIC FACTORS AFFECTING
BUSINESS
• Demand & Supply
• Marginal &Total Utility
• Money & Banking
• Economic Growth and Development
• Income & Employement
• General Price Level
• Trade Cycle

5. IMPACT OF ECONOMIC ENVIRONMENT ON
BUSINESS
• Changing Income
• Changing Consumer Spending Pattern

6. ECONOMIC SYSTEM
• Economic system is a systematic process of
allocating resources and exchange of goods and
services for fulfilling the needs and wants of
people in a country or the economy.
• The types of economic systems are :
• Capitalism
• Socialism
• Mixed Economy

7. CAPITALISM/MARKET ECONOMY:
• Capitalism is an economic system where the
trade, industries and means of production are
completely privately owned. It can also be called
Free Market Economy/Capitalist Economy. This
kind of economy involves no interference from
the government.

8. FEATURES OF CAPITALISM:
I) PRIVATE PROPERTY
II) LARGE SCALE PRODUCTION
III) PROFIT INSTITUION
IV) COMPETITION
V) PRICE MECHANISM
VI) WAGE INSTITUITON
VII) MONYE & CREDITS
VIII) BUSINESS ORGANISATION
IX) MARKET ECONOMY

9. MERITS OF CAPITALISM
I) HIGH LEVEL OF PRODUCTION
II) PRODUCTS OF HIGH QUALITY AT LOW COSTS
III) GROWTH & PROSPERITY
IV) MAXIMUM WELFARE
V) OPTIMUM UTILIZATION OF RESOURCES
VI) FLEXIBLE SYSTEM

10. DEMERITS OF CAPITALISM:
I) LEADS TO MONOPOLY
II) INEQUALITIES
III) NON UTILIZATION OF RESOURCES
IV) DEPRESSION & UNEMPLOYMENT
V) INEFFICIENT PRODUCTION
VI) CLASS CONFLICT

11. SOCIALISM/PLANNED ECONOMY:
• Socialism is an economic system which
is owned and regulated by the
government. All the production &
other activities such as investement
pattern, income distribution,
consumption etc. are controlled and
directed by the government.

12. FEATURES OF SOCIALISM:
I) SOCIAL OWNERSHIP
II) SOCIAL WELFARE
III) CENTRAL PLANNING
IV) EQUALITY OF INCOME AND OPPORTUNITY
V) CLASSES SOCIETY

13. MERITS OF SOCIALISM:
I) GREATER ECONOMIC EFFICIENCY
II) GREATER WELFARE DUE TO LESS INEQUALITY
OF INCOME
III) ABSENCE OF MONOPOLISTIC PRACTICES
IV) ABSENCE OF BUSINESS FLUCTUATION

14. DEMERITS OF SOCIALISM:
I) FIXED OCCUPATION
II) MISALLOCATION OF RESOURCES
III) BUREAUCRATIC
IV) LOSS OF CONSUMERS

15. MIXED ECONOMY:
• Mixed economy emerges with joint
characterstic of capitalist and socialist
economic. It is the combination of public
and private ownership as well. A mixed
economy allows the private enterprise the
freedom to function and prosper but also
permits the government to ineterfere in
the matters in order to maintain economic
objectives.

16. FEATURES OF MIXED ECONOMY:
I) CO-EXISTENCE OF PUBLIC & PRIVATE SECTOR
II) INDIVIDUAL FREEDOM
III) ECONOMIC WELFARE
IV) ECONOMIC PLANNING
V) PRICE MECHANISM
VI) FREE AND CONTROLLED ECONOMIC
DEVELOPMENT
VII) GOVERNMENT INTERVENTION

17. MERITS OF MIXED ECONOMY:
I) SPEEDY ECONOMIC DEVELOPMENT
II) OPTIMUM ALLOCATION OF RESOURCES
III) BALANCE BETWEEN PRIVATE AND PUBLIC
SECTOR
IV) WELFARE STATE
V) ECONOMIC PLANNING

18. DEMERITS OF MIXED ECONOMY:
I) NON-COOPERATION BETWEEN THE TWO
SECTORS
II) UNSUCCESSFUL IN ERADICATING ECONOMIC
FLUCTUATIONS
III) INEFFICIENT PUBLIC SECTOR
IV) INEFFICIENT PLANNING
V) ENDAGERS FREEDOM

19. ECONOMIC PLANNING IN INDIA
• Economic planning can be defined as the long
term plans and decisons made by the central
government for the development of the
economy.This includes government spendings on
various schemes and programmes related to the
economoic development.
• Economy planning is the process to achieve
economic stability through effective utilisation of
national resources for the benefit of the society.

20. OBJECTIVE OF PLANNING IN INDIA:
I) RAPID ECONOMIC GROWTH
II) FULL EMPLOYMENT
III) ALLEVIATING THREE MAIN BOTTLENECKS
IV) ECONOMIC SELF RELIANCE
V) SOCIAL JUSTICE
VI) MODERNISATION OF THE ECONOMY
VII) ECONOMIC STABILITY

21. PLANNING MONETARY POLICY
• Monetary policy is defined as the policy
of central banks where the cost,
availability and use of the money are
controlled by using monetary methods so
as to attain predetermined objectives. It
uses various instruments to determine the
level of aggregate demand for good and
service or to analyse the trend in
economic sectors.

22. OBJECTIVES OF MONETARY POLICY:
I) TO SUPPORT ECONOMIC GROWTH
II) TO MAINTAIN THE PRICE STABILITY
III) TO MAINTAIN EXCHANGE RATE STABILITY
IV) TO ACHIEVE BALANCE OF PAYMENT
EQUILLIBRIUM
V) TO ACHIEVE FULL EMPLOYEMENT
VI) TO REDUCE ECONOMIC INEQUALITIES

23. TYPES OF MONETARY POLICY:
I) EXPANSIONARY MONETARY POLICY
II) CONTRACTIONARY MONETARY POLICY
III) COUNTERCYCLICAL MONETARY POLICY
IV) RULE BASED MONETARY POLICY
V) DISCRETIONARY MONETARY POLICY

24. INSTRUMENTS OF MONETARY POLICY:
CREDIT CONTROL BY RESERVE BANK OF INDIA
CREDIT CONTROL IS THE MOST SIGNIFICANT
TOOL FOR THE MONETARY POLICY.
THE INSTRUMENTS OF CREDIT CONTROL CAN BE
CATEGORIZED INTO:
I) QUANTITAIVE METHODS
II) QUALITATIVE METHODS

25. QANTITATIVE INSTRUMENTS:
I) BANK RATE
II) OPEN MARKET OPERATION
III) VARIATIONS IN THE RESERVE REQUIREMENTS
A) CASH RESERVE RATIO (CRR)
B) STATUTORY LIQUIDITY RATIO (SLR)
IV) REPO RATE
V) LIQUDITY ADJUSTMENT FACILITY

26. QUALITATIVE INSTRUMENTS :
I) CREDIT RATIONING
II) MARGIN REQUIREMENT
III) PUBLICITY
IV) REGULATION OF CONSUMER CREDIT
V) MORAL SUASION
VI) DIRECT ACTION

27. SIGNIFICANCE OF MONETARY POLICY:
I) CONTROL INFLATION & DEFLATION
II) AVAILABILITY OF THE SUPPLY OF MONEY &
CREDIT
III) INTEGRATED INTEREST RATE STRUCTURE
IV) EFFECTIVE CENTRAL BANKING
V) LONG TERM LOAN FOR INDUSTRIAL
DEVELOPMENT
VI) CREATION OF FINANCIAL INSTITUTIONS

28. FISCAL POLICY
• Fiscal policy represents the government
policy related to tax and expenditure. It is
a type of economic policy which controls
and regulates the tax system, expenditure,
borrowing and public debt management
within a country.
• The main focus of fiscal policy is on the
flow of money in a particular economy.

29. OBJECTIVES OF FISCAL POLICY:
I) INFRASTRUCTURAL DEVELOPMENT
II) TAXATION
III) PUBLIC SAVINGS
IV) PRIVATE SAVINGS
V) EFFECTIVE ALLOCATION OF FINANCIAL RESOURCES
VI) PRICE STABILITY AND INFLATION CONTROL
VII) EMPLOYMENT GENERATION
VIII) BALANCED REGIONAL DEVELOPMENT
IX) CAPITAL FORMATION
X) INCREASING NATIONAL INCOME
XI) REDUCTION IN INEQUALITIES OF INCOME AND
WEALTH

30. TYPES OF FISCAL POLICY:
I) EXPANSIONARY FISCAL POLICY AT THE TIME OF
RECESSION EXPANSIONARY FISCAL POLICY IS APPLIED.
IN THIS FISCAL POLICY THE GOVERNMENT SPENDING IS
INCREASED AND TAXES ARE LOWERED.
II) CONTRACTIONARY FISCAL POLICY IT IS USED IN THE
SITUATION WHEN THE ECONOMIC GROWTH IS
UNCONTROLLABLE I.E. THE INFLATIONARY SITUATION
HAS TO BE SLOWED DOWN TO ATTAINA SUSTAINABLE
POSITION.

31. SIGNIFICANCE OF FISCAL POLICY:
I) FULL EMPLOYMENT THROUGH-
A) TAXATION
B) PUBLIC EXPENDITURE
C) PUBLIC BORROWINGS
D) DEFICIT FINANCING
II) ECONOMIC STABILISATION
III) ECONOMIC GROWTH
IV) SOCIAL JUSTICE

32. INSTRUMENTS OF FISCAL POLICY:
I) TAXATION
A) DIRECT TAXES
B) INDIRECT TAXES
II) PUBLIC EXPENDITURE
III) PUBLIC BORROWING

33. UNION BUDGET
• Union Budget is an all-inclusive presentation
which reflects complete details about the
financial aspects of government, especially
regarding their expenditures.
• In India the union budget is considered as the
most important and monetary affair.
• It is presented by the Finance Minister every year
to reveal government’s spending and earning
plans.

34. CHARACTERISTICS OF UNION BUDGET:
I) EMPHASISE ON CONTROLLING EXPENDITURE
II) INCLINATION TOWARDS INCREMENTALISM
III) NO ATTEMPT TO RELATE INPUTS TO OUTPUTS
IV) PREPARED FOR SPECIFIC TIME PERIOD

35. OBJECTIVES OF UNION BUDGET:
I) ALLOTMENT OF FUNDS
II) RE-DISTRIBUTION ACTIVITIES
III) ECONOMIC STABILITY
IV) ADMINISTRATION OF PUBLIC ENTERPRISES

36. UNION BUDGET AS INSTRUMENT OF GROWTH:
I) BLUEPRINT FOR OVERALL FUNDS
II) LIMIT EXPENDITURE
III) CREATES FINANCIAL ROADMAPS
IV) PLAN FOR FUTURE GROWTH
V) REDUCE TIME AND COMPLEXITY

37. INDUSTRIAL POLICY
• Industrial policy of a nation or economy is a
declared and official plan with strategic attempt
to influence the growth of various sectors.
• The policy measure involves specific activities
which stimulates and promote the structural
changes.
• It is a set of govenment schemes, procedures,
principles, and rules for the regulation, control,
and growth of industrial entities in a country.

38. OBJECTIVES OF INDUSTRIAL POLICY:
I) TO CORRECT IMBALANCES
II) TO REGULATE FLOW OF RESOURCES
III) TO ENSURE MAXIMUM UTILIZATION OF
RESOURCES
IV) TO MONITOR PRIVATE INDUSTRY
V) TO DEFINE INDUSTRIAL AREA
VI) TO INSURE EQUAL WEALTH DISTRIBUTION
VII) TO CONTROL FOREIGN CAPITAL

39. IMPORTANCE OF INDUSTRIAL POLICY:
I) ESTABLISH CO-ORDINATION
II) DIRECTS NATIONAL RESOURCES
III) HELPS IN INDUSTRIAL DEVELOPMENT
IV) PREVENTS ECONOMIC POWER
CONCENTRATION
V) PROPER CONTROL
VI) PROMOTES EXPORT
VII) PREVENTS DUPLICATION OF ECONOMIC
RESOURCES

40. NEW INDUSTRIAL POLICY 1991
• NIP was introduced by mr P.V.Narishma rao,under
congress government on 24july,1991.
• Liberalisation
• eliminate control of bureaucracy
• globalisation
• free flow of direct investment in india
• removes MRTP act
• private sector enlarged

41. FEATURES OF NEW INDUSTRIAL
POLICY
1. Abolition of industrial licensing
2. Diminshing role of public sector
3. Incentives and concession for foreign investment
and technology
4. Drastic amendments to MRTP act
5. Removal of compulsory convertibility clause

42. IMPLICATION OF NEW INDUSTRIAL POLICY IN
INDIA
1. Growth of new economy companies
2. Economy bailed out
3. New breed of Entrepreneurs
4. FDI and new technologies
5. Greater competitive strength
6. Healthy competition
7. Sustained economic growth

43. NEW ECONOMIC POLICIES
• IN business evironment, affects the nature of
ownership,industrial relations,labour markets and other related
areas.
MAJOR ECONOMIC POLICIES
1 Fiscal policy
2 Monetary policy
3 Foreign trade policy
4 Industrial policy
5 Labour policy
6 Agricultural policy

44. IMORTANCE OF ECONOMIC
POLICIES
1. Increase rate of economic growth
2. Removal of poverty and Inequality
3. Improved efficiency of the public sector
4. Price stability
5. Improved balance of payments
6. Improved efficiency
7. Continuos development of small scale industries

45. REGULATIONS OF NEW ECONOMIC
POLICY
1. Industrial licensing
2. Foreign investment
3. Foreign technolgy agreement
4. Public sector policy
5. Monopolies and resrictive trade practices act(MRTP)

46. RECENT DEVELOPMENT IN NEW ECONOMIC
POLICY
1. Gdp growth profile
2. Service sector
3. Inflation
4. Foreign exchange
5. Short-Term Debt
6. Industrial growth

47. IMPACT OF NEW ECONOMIC POLICIES ON
BUSINESS
1. POSITIVE IMPACT
• improvement in performance of the economy
• growth in empolyment opportunities and better employments
• large reserve of foreign exchange
• easier access to foreign technology
• significant fall in poverty ratio
• fall in inflation rate
• better performance after privatisation
• regulated capital market
• increasing foreign direct investment
• growth in tax revenue of central government

48. 2. NEGATIVE IMPACT
• Fiscal deficit continue to soar as the root cause
remains
• problem of unemployment
• growth of monopoly houses
• ruination of agricultutre and pds