GROUP 1

Indian
Economic
Environmen
t
QUIAMBAO UBALDO VERGARA
Introduction
Economic conditions of a country are
very important determinants of business
strategies. The nature of the economy,
the stage of development of the
economy, economic resources etc., are
the important determinants affecting the
busines.
 Major forms of economic system:

Prof. Louks and Whitney

“an economic system consists of those institutions which a given 1. Capitalism
people or nation or group of nations has chosen or accepted through
their resources are utilized for the satisfaction of human wants”

2. Socialism 3. Mixed Economy

 Capitalism
What is a Capitalist
Economic System?
A market-oriented economy in which the
resources of production are owned by the
private individuals. The interference of the
government in the functioning of the
economic-system is the minimum.
It is also known as free enterprise economy
and market economy.
“The Capitalist system is one characterized
by the private ownership of the means of
production, individual decision making
and the use of the market mechanism to
carry out the decision of the individual
participants and facilitate the flow of goods
and services in markets.”
Gary and Joyce Pickergill
 Characteristic Features
of Capitalism

1. Limited Role of 2. Private Ownership 3. Market System

Government
4. Free Enterprise 5. Consumer’s 6. Competition
Sovereignty

7. Freedom of choice of 8. Freedom to save 9. Absence of a

occupation & invest central plan

10. Profit Oriented

Demerits of Capitalism
1. Profitability
criterion for
investment
• investment allocation is
guided by the
profitability criterion
• sufficient investment
may not take place in
areas where profitability
is low no matter how
essential it is
• pro-rich, anti-poor
2. Unequal
distribution of
income and wealth
• right to property will
most likely lead to
concentration of income
and wealth in the hands
of a few capitalists
• makes the rich, richer and
the poor, poorer
3. Scope for Cut-
throat Competition
• free competition will give
scope for cut throat
competition
• large firms are likely to
gain an advantageous
position which would
ultimately lead to
monopolies
 Major forms of economic system:

Prof. Louks and Whitney

“an economic system consists of those institutions which a given 1. Capitalism
people or nation or group of nations has chosen or accepted through
their resources are utilized for the satisfaction of human wants”

2. Socialism 3. Mixed Economy

 Socialism
What is Socialism?
An economic system where the means of
productions are either owned or controlled
by the state. The resource allocation,
investment pattern, consumption and
distribution patterns etc., are directed and
regulated by the state. It evolved as a
remedial measure to correct the evils of
capitalism.
“Socialism is an economic organization of
the society in which the material-means of
production are owned by the whole
community or State and operated by
organs and representatives of and
responsible to the community according to
a general economic plan, all members of
the community are entitled to benefit from
the result of such socialized planned
production on the basis of equal rights.”
Dickinson
 Characteristic Features
of Socialism

1. Government 2. Central Authority 3. Distribution of

Ownership and Control Income
4. Fixation of wages 5. Restriction on 6. Restriction on
and prices Occupation Consumption
 Advantages & Disadvantages
Advantages Disadvantages
• Equality of income and wealth • Undue government control
• Scope for rational socio- • Restricted individual freedom
economic decisions of the • Absence of consumer
government sovereignty
• Planned adjustment of resources
• Absence of economic
exploration, etc.
• Wide scope for optimum
utilization
• Rapid economic progress
 Major forms of economic system:

Prof. Louks and Whitney

“an economic system consists of those institutions which a given 1. Capitalism
people or nation or group of nations has chosen or accepted through
their resources are utilized for the satisfaction of human wants”

2. Socialism 3. Mixed Economy

 Mixed
Economy
What is a Mixed
Economy? “An economy in which resources are
Shares certain features of both capitalism allocated and exploited partly through the
and socialism. It is characterized by the co- decisions of private individuals and firms
existence of public sector and private and partly through the decisions of the
sector. It aims to combine all best features government and state owned enterprises.”
of the previously discussed type of
economy and attempts to avoid the Anonymous
demerits or limitations of both the systems.

1.
Participation of both public
sector and private sector in
the economic development
of the economy.
Features of Mixed
Economy
2. 3. 4.
Greater emphasis on social Inevitability of economic- Equal scope for both public
welfare than on personal planning with a democratic and private sectors.
welfare. approach.
Advantages Disadvantages
1. Healthy competition between 1. Over-emphasis of government role
private and public sectors. and public sector undertakings.

2. Scope for private initiative as there

2. Conflicting ideas of socialism and
is the right of private property in a
capitalism.
mixed economy

3. There is full scope for creativity, 3. Frequent economic fluctuations and

personal freedom and economic high-inflationary pressures.
liberty.

4. Has an inbuilt mechanism for social

justice, economic equality and
improved standard of living of the
people.
Brief History of the
Indian Economy
Indian Economy in the Pre-British Period
 Brief History of the
Indian Economy
Pre British Period
The economic conditions in India during
the pre-British period were almost like
those which prevailed in most of the
European countries. The agricultural sector
and industrial sector were satisfactory
while trade and transport were just
satisfactory. The Indian economy consisted
of self-sustaining villages. The village
community was based on a simple division
of labor.
There were three distinct classes in villages.
• The agriculturists
• The village artisans like goldsmiths,
weavers, carpenters, potters, washermen,
blacksmith etc.,
• The village officials, money lenders,
landlords, etc.
Most of the food produced in the village was
consumed by the village population itself.
The raw materials are produced.
 Consequences of
British Rule in India
India was under British rule between 1757 and 1947. The British rule can be divided into two
categories. The first category is the rule of the British East Indian Company from 1757 to
1858. The second category is the rule of the British Crown from 1858 to 1947. Indian
culture, administration and economy have been largely influenced by the British.
• Decline of Indian handicrafts and ruralisation of the economy.
• Introduction of new land system.
• Commercialization of agriculture.
• The process of industrial transition.
 Nature of an Underdeveloped
India asEconomy
an Underdeveloped
Economy
“A country characterized by (i) mass poverty which is chronic and not the result of some
temporary misfortune and (ii) obsolete methods of production and social organization, which
means that the poverty is not due to poor natural resources and hence could presumably be
lessened by methods already proved in other countries".
-Eugene Staley
• Low Per Capita Income • Prevalence of chronic Unemployment
• Low Standard of Living • Capital Deficiency and the Low rate of Capital Formation
• Occupational pattern is predominantly agriculture • Poor Quality of Human Capital
• Under Utilization of Natural Resources • Prevalence of Low-Level Technology
• Population Explosion • Poor Economic Organization
Causes of Underdevelopment in the Indian
Economy
• Economic factors - insufficient capital because of hoarding.
• Political Factors - the role of the state has become a single dominant
force.
• Technological Backwardness - using traditional and obsolete technology.
• Institutional difficulties - no proper public institutions especially in
finance, i.e. undeveloped banking system.
• Social Factors - religious customs and family structure. Ex. Caste
System.
 INDIAN
SOCIALISM
Indian Socialism
John Maynard Keynes opposed the
complete socialization of means of
production. Instead he favoured a
compromise between the two extremes,
Government participation along with
individual enterprise in economic sphere.
 Important features of Indian
Socialism:
I. It is neither Capitalism nor Socialism - Some of
the economic activities are the exclusive areas of
operation for the public sector whereas in other
areas the private sector is allowed to operate.
3. Removal of Inequalities in wealth distribution -
Indian socialism aims at removing the
maldistribution of wealth among people.
2. Planned economy - Indian economy is a
planned economy which is administered and
controlled with the help of the plans and policies of
the State.
4. Socialistic Pattern of Society - The object of the
Indian economy is the establishment of a socialistic
pattern of society where in no distinction shall be
made between individuals on the basis of race,
religion, caste, creed sex etc.
Economic Roles of
Government
Different societies have evolved
different economic systems
along with the sets of social,
political and economic
institutions.
 The reasons for the
governments role are:
1. Public Goods 2. Maximum
efficiency of resource
3. Stabilization
use may misguide activity
Certain goods which are Market mechanism Government protects the
essential to society might not the society where some necessities economy against fluctuations.
may not be produced in adequate
be produced at all if they were For this purpose, it enters the
prominence. Like for example:
not supplied by Government. field of banking, trading etc.
luxury cars in the midst of food
scarcity.
4. Organization of
Production
5. Income
Distribution
In developing economies, Market economy leads to
entrepreneurship is often inequality of income, a few
inadequate. In such cases,
persons have more income than
Government may provide initiative
required while others are at
and improve organization of factor
use. bare subsistence level.
 Nature of Government Activity
Government conduct of
production
In-order to meet the community goals,
Government produces services directly.
Control Approach
The government controls those activities of
private sector which give rise to significant
external cost such as environmental pollution
which may be subject to control.
The subsidy approach
Subsidization of private producers to induce
them to increase output or to undertake
investment that they would not otherwise
make is another method of intervention by the
government.
Transfer Payments
Government also influences the pattern of
distribution of income by the nature of tax
structure.
Thank
you!