Economic Environment:

Concept and nature of

economic environment,
critical elements of economic
environment,
Stock exchange,
Basic Economic Systems ,
Critical Elements of Economic Environment
 Economic Environment - The economic
environment comprises all those
economic forces which
influence the functioning of business
enterprises, e.g., the nature and structure
of the economy,
the stage of economic development,
economic resources, the level of income,
economic policies,
distribution of income, etc
The main components of economic environment are as
follows:
(i) The nature of economic system-capitalist, socialist or
mixed economy.
(ii) Economic structure-occupational distribution of labor
force, structure of national output, capital formation,
investment pattern, composition of trade,
balance/imbalance between different sectors, five year
plans.
(iii) Economic policies-industrial policy, export-import policy,
monetary policy, fiscal policy, foreign investment and
technology policy.
(iv) Organisation and development of the
capital market-banking system, securities
markets, etc.
(v) Economic indices-gross national product,
per capita income, rate of savings and
investment, price level, balance of payments
position, interest rates, etc.
(vi) Economic infrastructure and stage of
development of the economy.
(vii) Product markets and factor markets-
degree of competition, market size, etc.
 Meaning

• Stock Exchange is a market in

which securities are brought
and sold and it is an essential
component of a developed
capital market.
Objectives and Role of Stock Exchange
 Dealings on Stock Exchange

• Dealings on the stock exchange are subject to the

bye-laws and rules of the stock exchange. Stock
exchange dealings in India are regulated by the
Securities Contracts (Regulation) Act and the
Securities and Exchange Board of India (SEBI).
 Regulation of Stock Exchange
• Securities Contracts (Regulation) Act
A perusal of the important provisions of the SCRA will indicate
that the important objectives of the Act are:
1. To empower the Central Government to regulate the dealings
in and functioning of the stock exchange in India.
2. To promote healthy and orderly development of the stock
market in India.
3. To prevent unhealthy speculation and other undesirable
activities on the stock exchange.
4. To protect the interest of the investors.
5. To provide for reasonable uniformity in respect of the bye-
laws and rules of the different stock exchanges in India.
 Main Provisions
• The Securities Contracts (Regulation) Act, 1956, empowers the Central
Government to take appropriate measures to achieve the objectives
mentioned above. The important provisions of the Act encompass the
authority given to the Central Government, or, in certain cases the SEBI,
pertaining to:
1. The grant of recognition or withdrawal of recognition to any stock
exchange.
2. Approval of the bye-laws and rules of stock exchanges.
3. Power to direct the stock exchange to make or amend roles and bye-laws
in certain cases.
4. Power to make or amend bye-laws or roles for stock exchanges.
5. Monitoring the activities and functioning of the stock exchanges by calling
for periodic returns and specific information as and when required and by
conducting inquiry into certain matters when the situation so warrants.
6. Power to suspend business of stock exchanges.
7. Power to supersede governing body of any stock exchange on account of
specific reasons.
8. Regulation of listing of securities.
 SEBI

• The establishment of the Securities and Exchange Board

of India (SEBI) was a land mark government measure to
monitor and regulate capital market activities and to
promote healthy development of the market.
• The SEBI was constituted in 1988 by a resolution of
Government of India and it was made a statutory body
by the Securities and Exchange Board of India Act, 1992.
 Objectives

• According to the Act, the objectives of SEBI are to protect

the interests of investors in securities and to promote the
development of, and to regulate, the securities market
for matters connected therewith or incidental therewith.
• SEBI is a statutory body with a triple mandate: protection
of interests of investors, proper regulation of the stock
exchanges and healthy development of securities market.
 Economic environment
• Economic system, economic planning,
industry, agriculture, infrastructure, prices,
economic reforms, N.I, GDP etc

• Capitalism:- Featured by pvt. Ownership.

 Characteristics of Capitalism
1. Freedom of enterprise
2. Private ownership
3. Profit Motive
4. Market system
5. Consumer’s sovereignty
6. Competition
7. Limited role of Govt.
8. Absence of central plan
 Merits of Capitalism
1. Efficient use of resource
2. Democratic
3. Automatic balance in system
4. Efficiency properly rewarded
5. Economic growth
6. Encourage Capital formation
 Demerits
1. Wastage & misallocation of resources:
2. Economic Instability
3. Consumer’s sovereignty is myth
4. Inequality of wealth
5. Class struggle
6. Unemployment & corruption
7. Inflation
 Socialism
Features:-
1. Equitable distribution of income
2. Govt. Ownership
3. Economic laws
4. Central authority
 Merits
1. Better allocation & utilization
2. Elimination of unemployment
3. No Cyclic fluctuation
4. No class struggle
5. Less inequality of income
 Demerits
1. Bureaucratization:
2. Lack of incentives
3. Red tapism
4. Control of economy with State
5. Promote corruption
6. Misallocation of resources
7. No consumer sovereignity
 Mixed Economy
A mixed economy is defined as an economic
system consisting of a mixture of
either markets and economic planning, public
ownership and private ownership,
or markets and economic interventionism.
However, in most cases, "mixed economy" refers
to market economies with
strong regulatory oversight and governmental
provision of public goods, although some mixed
economies also feature a number of state-run
enterprises.
 Political Environment
• Civil war
• Emergency
• Change in Govt.
• Legislature
• Executives
• Judiciary