Economic Social Environment

8/3/2019 Economic Social Environment

1/51

Economic and Social

Environment


2/51

Course structure

Economic and social Environment Structure of Indian Economy

Planning and Policies External sector Economic Reforms since 1991.


3/51

Unit IEconomic and Social Environment

Economic Environment of Business Socio-cultural and Politico-legal

environment Changing role of Government


4/51

Why know environment?

Env. Totality of all factors which areexternal to and beyond control of manager

Env. macro, complex, variable Firm micro unit Manager must be aware of all the aspects

of environment for efficient decision-making


5/51

Economic Environment

Refers to the broad characteristics of economicsystem in which the firm operates

Complexities firms have to maintain relationswith govt, K-market, household sector, foreignsector

Limited resources so problem of choice

Free market mechanism Role of govt Openness of economies


6/51

Critical elements of economicenvironment

Kind of economic system Structure of economy whether high

income, low income How does the economy function? Level of

income, emp, savings, etc.

Planning process Economic policies


7/51

Contd

Functioning of markets Objectives of national planning

Policies of government Pattern of economic changes. Forms of international co-operation

A manager must be aware of all theseaspects of environment.


8/51

Non economic aspects of env.

Social Educational-cultural

Political-legal Historical Physical

All these factors have influence overeconomic env of a firm so manager mustknow them.


9/51

Socio-cultural Environment Social institutions and systems Caste System, position

of Women, children Social attitudes and values towards business, work Education and culture matching with requirement

Role of govt Social movements and groups trade union, consumer,management, shareholders, environment movements

Socio-economic order Social problems poverty, inequality, etc.So Cost

Benefit Analysis is requiredProcess of industrialisation can be analysed thru these

factorsSocial movements are also important


10/51

Social Responsibility of Businessfirm

Profit maximization is not the only goal Serving the public

Carrying out innovations Balancing manifold expectations of

general social groups


11/51

Politico-legal environment

Forms of govt Ideology of ruling party Strength of opposition Role and responsibility of bureaucracy Political stability Govt plans Socio-economic legislation Institutions


12/51

Indian environmentMixed Economy Public and private sectors coexist Central planning and pricing Social Welfare objective of govtThis status evolved thru Industrial Act -1951 Directive Principles IPR 1956 MRTP Act Now new direction thru NIP 1991.(A note on the changing role of Govt. page 104)


13/51

Govt machinery for industries

What is the Purpose of:Company LawsSEBI

MRTPFERABIFR

Consumer Protection ActEnvironment Protection Act


14/51

Unit IIStructure of Indian Economy

Structural Dimensions of Indian Economy Structure of Indian Industry

Public sector of India Private sector of India Small sector of India

Sickness in the Indian industry


15/51

Basic structural Changes

NI has grown by average of 4%p.a. There has been fluctuation in the growth

rate plan wise. Share of agriculture in Indias GDP has

declined from 60% to 28%

Share of industry has gone up from 13 to25% Share of services 28 to 47%.


16/51

Contd

Saving rate 20% Money supply has increased by 17%p.a. Population growth rate 2.3 to 2.1%

Sex ratio fallen from 972 to 933 Birth rate 9 per 1000 High dependency ratio 42% Urban population 11% to 23% Literacy rate 65% Life expectancy 65 years


17/51

Structure of Indian Industry

1951-65 period of strong foundation toIndian industries

1965-1980 period of industrialretrogression and deceleration

1980 onwards period of rehabilitation

Diversification Table 5.5


18/51

Public sector

Role of Public Sector Capital formation Development of infrastructure

Strong industrial base Economies of scale Removal of regional disparities Import substitution and export promotionGrowth and Performance of Public sector Table

6.2)


19/51

Problems of Public sector Nearly 50% of the units were incurring mounting losses

particularly in irrigation works, state electricity boards,etc.

Returns in the public sector investment remained to below due to huge investment base.

There are many administrative problems like lack ofautonomy to the individual units, political interferenceregarding the locational and employment policies, lack ofaccountability, etc.

Many Public sector enterprises have become overstaffeddue to the employment generation programmes of thegovernment.

About 22% of the units are operating with the capacityutilization of less than 50%.


20/51

Why privatization?Privatisation is a process that reduces the

involvement of the state or public sector in theeconomic activities

Why? Improves efficiency Fixing responsibility is possible Capital market discipline Remedial measures taken early Better servicesTables 7.1, 7.2


21/51

Small Scale Industries

Role and performance Expansion and share in the NI Employment generation Equitable distribution of NI Mobilisation of capital and entrepreneurial skill Regional dispersal of industries

Less industrial disputes Contribution to exports


22/51

Problems Scarcity of Finance Problem of raw materials Problem of Outdated technology Marketing problem Other problemsThey face the problem of inefficient management.They do not get sufficient power and infrastructure

facilities in comparison with the large-scale units.Many of the units have excess capacity which remains

unutilized either due to lack of funds to buy rawmaterial or due to lack of adequate power resources.


23/51

Govts policy towards SSIs

Establishment of many institutions Increase in investment limit Reforms in equity participation

Change in ownership pattern Single Window Scheme for raising working

capital as well as long term loans Marketing and other technical assistance. Promotion of competition by dereserving items Rs. 75,000 for getting ISO certification


24/51

Unit III

planning and policies

Planning Goals and strategies Evolution of industrial policies Regulatory and promotional framework


25/51

Goals of planning

Increase NI and PCI Full employment

Reduce inequalities Socialistic society based on equality andsocial justice.


26/51

Planning strategies

Different in different plans 1 st plan (51-56) - rehabilitation, food self-

sufficiency

2nd

plan(56-60) big push for heavy industry 3 rd plan (61-66) two legged strategy 4 th plan(69-74) growth with stability and self

reliance 5 th plan(74-79) poverty eradication thru wage

good model rather than heavy industry model 6 th plan(80-85) - infrastructure


27/51

Contd

7 th plan(85-90) direct attack on poverty,unemp, regional imbalance

8 th plan(92-97) correcting fiscal deficit

9 th plan (97-03) social welfareIn nutshell, three types of strategies were followed:Nehru- Mahalanobis Model (13)

Gandhian Model (15)Rao-Manmohan Model (16)


28/51

Industrial Policy

1948 division of industries in 4categories

1956 3 categories gave more power togovt to nationalise

1980 redefined small units, dealt withindustrial sickness, excess capacity

1991


29/51

Regulatory Framework

Industrial licensing Control over monopoly

Foreign investment control SSItaxation

Industrial location policy


30/51

Unit IVExternal Sector

Indian Foreign trade Indias balance of payment

Export and import policies Foreign capital and collaborations Indias external debts


31/51

Indias Foreign Trade

Composition goods imported and exported.Reveals the economic status of a country

Change in composition reflects the economic

transformation of a country (table 13.4 and 13.5) Direction countries which are our trading

partners. (table 13.6 and 13.7)

There has been a change in the direction andcomposition of Indias trade sinceindependence.


32/51

Balance of Payments

Systematic record of all economictransactions taking place between theresidents of a country and the rest of the

world within a given period of time Current account Capital account

Official reserve accountTrends in Indias BOPs (tables 14.2 and

14.3)


33/51

Trade policy

EXIM Policy (1997-2002) and 2002-07page 55

Foreign investment policy Other trade policy reforms towards

liberalisation ER, SEZ, etc.


34/51

Foreign Capital

Role of foreign capital Policy towards foreign capital

FERA


35/51

External Debt

Role War

Unexpected events To control inflation Depression

Development Current expenditure on human capital


36/51

Unit VEconomic Reforms since 1991

Industrial policy of 1991 Economic reforms: liberalisation,

Globalisation and privatisation Financial sector reforms Fiscal sector reforms

Economic reforms and social justice


37/51

Industrial Policy 1956

Monopoly of state 17 industries likearms, railway, atomic energy, air transport,heavy chemicals

Mixed sector 12 industries like road andsea transport, machine tools, fertilizers,etc.

Private sector rest of the industries


38/51

Contd.Features of Indias IP Industries were divided into three categories

exclusively for state ownership, state and pvtownership and entirely for pvt sector.Importance given to small scale industrieswith employment generation view

Balanced regional growth throughconcessions for units in backward areas.


39/51

New Industrial Policy 1991

Main Features 1. Industrial licensing 2. Policies relating to foreign investment 3. Role of public sector 4. MRTP act 5. Policy package for the small scale

industries


40/51

Licensing

Only six industries need licensing now alcohol, cigarettes, hazardous chemicals,defence equipment, industrial explosives

and drugs The delicensed industries are required to

submit an Industrial EntrepreneurMemorandum to Secretariat for IndustrialApprovals which acknowledges thereceipt.


41/51

Foreign investment policies

High technology and high investmentpriority industries were allowed 51%initially and the 100% foreign equity suchas capital goods, food processing, export-oriented services,etc.

Except arms, gold, atomic energy, railway,coal and lignite, most of the industries areunder the purview of automatic route.


42/51

Role of Public sector

Diluted role Only 3 industries left for pub sector

atomic energy, minerals for atomic energyand railway

Rehabilitation, reconstruction or selling ofthe existing public sector units


43/51

MRTP Act

MRTP limit goes All the units will be on par and need no

prior govt approval in the delicensedindustries.

MRTP act accordingly amended to protectinterests of the consumers againstmonopolistic and restrictive tradepractices.


44/51

Policies for SSIs

Investment limit of Rs.1 crore Tiny units 25 lakhs Separate package to support them in skill and

technological upgradation Equity participation by other industrial units to

cement the economic bonds between the largeand small sectors

Limited or restricted partnership liability of atleast one partner is unlimited and the others canhave limited liability. This may attract capitalfrom friends and relatives.


45/51

Concepts

Liberalisation Globalisation

Privatisation


46/51

Indian Financial System

Structure of Indian Financial System Techniques of credit control

Role of development banks


47/51

Financial sector Reforms

Regulation and supervision Rehabilitation of nationalised banks Reduction in SLR and CRR Deregulation of Interest Rates

Phasing out of directed credit competition

f h


48/51

Recos of NarasimhanCommittee

Strong banks should be merged and weakbanks should be closed

2-3 banks with international orientation, 8

to 10 national banks and large no of localbanks. Budgetary support to recapitalisation

should be abandoned. Rationalisation of branches and staff.


49/51

Contd.. Variable reserve ratio can range between 3 to 15%.

Was 15% in 1980s. But the NC recommended reductionas it reduces the profitability of banks. Today, CRR is 5%of time and demand liabilities of banks. This has freedthe cash balances of the commercial banks.

Statutory Liquidity ratio SLR has to be between 25 to40% of the net demand and time liabilities of banks. In1990s it was as high as 39% which reduced the ability ofbanks to create credit and reduced inflation and also

made more funds available for govt. But NC did notfavour this. So SLR was brought down to 25%.


50/51

Fiscal reforms

Taxation Raja Chelliah Committee Public Expenditure Reforms Issues related to public debt.


51/51

ALL THE BEST

Economic Social Environment

Documents

Transcript of Economic Social Environment