BBA 204 12/6/2017

 Nature of Economic Environment

 Economic factors
 Growth Strategy
 Economic parameters

BBA 204 12/6/2017

 Refers to all those economic factors which
have a bearing on the functioning of a
business unit.
 Business depends on the economic
environment for all the needed inputs and to
sell the finished goods.

BBA 204 12/6/2017

 Growth strategy
 Economic systems
 Economic planning
 Industry
 Agriculture
 Infrastructure
 Financial and fiscal sectors
 Removal of regional imbalances
 Price and distribution controls
 Economic reforms
 Human resources
 Per capita and national income

BBA 204 12/6/2017

 The economic environment which now prevails in our country is the result of the
economic growth strategy relentlessly pursued during the past five decades by the
govt of India.
 The growth strategy was based on the Soviet Planning model which gave central
role to the govt in the control and direction of economic activity.
 It was believed that the savings rate in the economy and the growth rate, could be
increased if India invested heavily in the capital goods and heavy industry sectors
at the expense of the consumer goods sector. Such investments were undertaken
by the State.
 The State emerged both as the mobiliser of savings as well as an important
investor and owner of capital. Since the State was to be the primary agent of
economic change, it followed that private sector activities had to be strictly
regulated and controlled to confirm to the objectives of the State policy.
 The growth strategy also meant, in the early years of planning, a relative neglect
of public investment in agriculture. This negligence of agriculture was supported
by prevailing view that a growing labour force in the developing countries could
only be absorbed in industry, and that in the early stages of industrialization, it
was necessary for agriculture to contribute to the building up of modern industry
by providing cheap labour.

BBA 204 12/6/2017

 The neglect of exports and trade
opportunities.
 Undue reliance on physical controls.
 Inefficiency of the public sector and total
neglect of agriculture.

BBA 204 12/6/2017

1. GDP
 one of the basic indicators of overall health of the
economy. It provides the measure of aggregate
output and its comparison over time indicates the
rate of growth in the economy.
 It means the gross value of all final goods and
services produced in the economy during a year.
 Estimated by multiplying the quantity of goods and
services produced by market price per unit.
 All intermediate or half finished goods are
excluded and the goods for final consumption and
investment are included in the value of final goods.

BBA 204 12/6/2017

2. Per capita income
 Means the average annual income per person. It is
calculated by dividing the national income with total
population.
 It is not a true indicator of a country’s economic position
because the purchasing power of different currencies is
different.
 Impact on business: the level and growth of GDP and per
capita income have significant implications for business.
Low per capita means low purchasing power and low
demand for a product or service. A business firm cannot
increase the purchasing power of people to increase
demand for its products., but it can increase the sales by
reducing the price of the product. Alternatively, a firm can
develop a new product which low income groups can
afford to buy.

BBA 204 12/6/2017

3. Nature and structure of economy

4. Population and economic development

Reduces per capita income, standard of living,
increase pressure on land, lesser savings, mass
unemployment.
Impact on business- size and composition of
population present both opportunities and
problems for business.
Opportunities arise because there are more
consumers, availability of more workers.

BBA 204 12/6/2017

5. Urbanization and its impact
6. Inflation
7. Money supply
8. Forex reserves
9. Exchange rate

BBA 204 12/6/2017