Business environment &legal

Aspects

UNIT - 2
Contents:
● Economic and Political Environment:
● Concept Definition of Economic Environment
● Economic Systems merits and demerits
● Economic Policies: Monetary Fiscal
● Industrial policies since Independence and their
significance
● Regulatory and promotional framework
● Structure of Indian Economy
● Nature and significance
● Economic Planning- Objectives, Merits Limitations
● Concept and Meaning of Political Environment.
Economic and Political Environment:
Economy :
● An economy is the way a nation makes economic choices about
how the nation will use its resources to produce and distribute
goods and services.
● The following are the different segments of structuring the Indian
economy
● I. Agriculture sector on the Eve of independence:
● The following observations describe the state of Indian
agricultural sector on the eve of independence.
● a. Low level of productivity: Level of productivity was very low.
● b. High degree of Vulnerability: (Rain conditions)
● c. A wedge between the owners of the soil and Tillers of the soil
● II. Industrial sector on the eve of Independence: Systematic de-
industrialization is the term that describes the status of industrial
sector during the British rule.
 Concept Definition of Economic Environment
● It implies two things.
● a. Decay of handicrafts some important causes
● i. Discriminatory tariff policy of the state: Heavy
duty on exports of Indian handicrafts.
● ii. Disappearance of princely courts: No support for
Handicrafts under British rule.
● iii. Competition from machine made products.
● iv. New patterns of demand: Western culture.
Demand for western products.
● v. Introduction to railways in India: Used for British
products distribution.
● b. Bleak growth of the modern industry:
● The British rule in India witnessed only a bleak
growth of modern industry. It was the second half
the 19th century that the modern industry started
showing its presence.
Developing Economy
● 1. Sustained growth:
● The economic growth of India since independence has
been erratic but there is an upward trend. Unit recently
India’s growth rate has been about 8% which is quite
good.
● 2.Significant changes in sectorial distribution of domestic
product: The contribution of agriculture to the gross domestic
product since the first two decades of the economic
planning has declined steadily due to service sector
development.
● 3. Change in the occupational distribution of the population:
● The changes in occupational pattern and shirt from
agriculture to other sectors.
● 4. Growth of capital goods industries:
● Industries developed to produce industrial goods. Ex:
Iron, Steel, heavy chemicals, fertilizers, heavy
engineering, locomotives, And machine tools.
● 5. Progress in transport, education and medical sector
CONTD,.
● Mixed Economy:
● It is a mid-way between socialist economy and capitalist
economy.
● Co-existence both public and private sectors is the feature
● 1. Public sector:
● Public sector or state owned means of production was mainly
for a social welfare cause while the privately owned means of
production had an interest mainly in the profit aspect. But
they had to operate only within the boundaries specified by
the
● Government and abide by their rules and regulations.
● The main aim of the Government was to promote and control
critically important industries and allow private ownership
only in those areas where the industries are no top priority.
● 2. Private ownership:
● Role of the public sector in the total national output is rapidly
diminishing with more and more industries coming under
private ownership courtesy the Government which is involved
in their active transfer.
CONTD,.
● 3. Decisive role of the market mechanism:
● The market mechanism for various markets is majorly
controlled by the government. Even then the markets run
as per the laws prevailing in the market. A licensing
system for industries was established but it could only
correct the license and control system to some extent.
With the introduction of structural reforms in 1991-92
market controls have been deregulated to a large
extent.
● 4. Economic planning:
● Even since India became independent it has been
practicing economic planning. The main purpose is to
develop all sectors and sections of the economy. The
government plans the economy for a period of five
years. These are called five year plans, some targets are
set to be achieved in the agricultural, industrial and other
ECONOMIC SYSTEMS
● There are four types of economies:
● 1. Pure Market Economy
● 2. Pure Command Economy
● 3. Traditional Economy
● 4. Mixed Economy
● Let’s review each of these types of economies.
● Pure Market Economy :
● NO government involvement in economic decisions.
● Private firms account for all production.
● Consumers decide WHAT should be produced.
● They do this through the purchases they make.
● Businesses determine HOW the products will be produced.
● They must be competitive.
● WHO buys the products? The people with the most money are able to
buy more goods and services.
● Problems Difficulty enforcing property rights - no laws.
● Some people have few resources to sell - no minimum income.
● Some firms try to monopolize markets - conspiring and price fixing.
● No public goods. - National defense?
CONTD,.
● Pure Command Economy:
● All resources are government-owned.
● One person (dictator) or a group of officials decide WHAT products are
needed.
● The government runs all businesses, controls all employment, and
decides HOW goods and services will be produced.
● The government decides WHO receives the products that are
produced.
● Problems Consumers get low priority.
● Little freedom of choice – few products.
● Resources owned by the state are often wasted – individuals don’t care
if they don’t own it.
● Traditional Economy
● 1. Economy is shaped largely by custom or religion.
● 2. Customs and religion determine the WHO, WHAT, and HOW.
● Example: India has a caste system which restricts occupational choice.
(A social class separated from others by distinctions of hereditary rank,
profession, or wealth.)
● Mixed Economy
● 1. Most economies in the world today are mixed.
● 2. Classification is based on how much government intervention there
Political Environment:
● Countries also have different philosophies of government which
reflect not only the laws and rules, but how individuals are treated.
There are three political philosophies:
● 1. Capitalism: Capitalism features private ownership of businesses
and marketplace competition. It is the same as a free enterprise
system. The political system most frequently associated with
capitalism is democracy.
● 2. Socialism: The main goal of socialism is to keep prices low for
all people and to provide employment for many. The government
runs key industries, generally in telecommunications, mining,
transportation, and banking. Socialist countries tend to have more
social services.
● 3. Communism: Have a totalitarian form of government; this means
that the government runs everything and makes all decisions.
Theoretically, there is no unemployment in communist countries.
The government decides the type of schooling people will receive
and also tells them where to live.
● Many countries are in transition from either communism or
socialism to capitalism.
● Privatization is a common aspect of transition from a command
economy to free enterprise system. Privatization means state-
owned industries are sold to private individuals and companies.
Economic Systems merits and demerits
● Importance/merits of mixed economic system
● Economic freedom and capital formation:
● Since people have the right to acquire and hold private
property, this right encourages capital formation.
● Economic freedom provides incentive to the people to
work hard.
● It promotes setting up of more business units which in
turn promote capital formation.
● Competition and efficient production:
● Healthy competition among the producers keeps the
standard of efficiency high.
● Because of the possibility of private profit all factors
work efficiently.
● Because of competition, all business units try to reduce
their wastages, improve efficiency and make optimum
utilization of resource.
 Economic Policies:
Monetary Policy:
● Monetary policy is a set of actions to control a nation's overall money
supply and achieve economic growth. Monetary policy strategies
include revising interest rates and changing bank reserve requirements.
Monetary policy is commonly classified as either expansionary or
contractionary.
● The Fed has traditionally used three tools to conduct monetary policy:
reserve requirements, the discount rate, and open market operations.
● Monetary policy influences interest rates in the economy – like interest
rates for housing loans, business loans and interest rates on savings
accounts. Changes in interest rates influence people's decisions to
invest or consume, which ultimately affects economic growth,
employment and inflation.
● The Federal Reserve Act mandates that the Federal Reserve
conduct monetary policy "so as to promote effectively the goals
of maximum employment,
1
stable prices, and moderate long-term
interest rates." Even though the act lists three distinct goals of
monetary policy, the Fed's mandate for monetary policy is
commonly .
● Monetary policy refers to central bank activities that are directed toward
influencing the quantity of money and credit in an economy. By
contrast, fiscal policy refers to the government's decisions about
 Fiscal policy
● The term ‘Fisc’ in English means ‘treasury’. Hence policy
concerning treasury or Government exchequer is known as ‘Fiscal
Policy’.
● Fiscal policy is that part of Government policy which is concerned
with raising revenues through taxation and other means deciding
on the level and pattern of expenditure it operates through budget.
However, generally the expenditure exceeds the revenue income
of the Government. In order to meet this situation, the
Government imposes new taxes or increases rates of taxes, takes
internal or external loans or resorts to deficit financing by issuing
fresh currency.
● Thus, the collective form of policies of imposing taxation, taking
loans or deficit financing is known as fiscal policy. The authors
have defined it as follows:
By fiscal policy is meant the use of public finance or expenditure,
taxes, borrowing and financial administration to further our
national income objective. –Buchler
● Changes in Government expenditure and taxation designed to
influence the pattern and level of activity. – J. Harry and Johnson
● “Fiscal policy is a policy under which the Government uses its
expenditure and revenue programmes to produce desirable
effects and avoid undesirable effects on national income,
production and employment.” - Arthur Smithies
CONTD,.
● There are mainly three constituents of the fiscal policy;
these are: (i) taxation policy, (ii) public expenditure
policy, and (iii) public debt policy. All these constituents
must work together to make the fiscal policy sound and
effective.
● Objectives of fiscal policy:
● Development by effective Mobilization of Resources
● Efficient allocation of Financial Resources
● Reduction in inequalities of Income and Wealth
● Price Stability and Control of Inflation
● Employment Generation
● Balanced Regional Development
● Capital Formation
● Reducing the Deficit in the Balance of Payment
● Foreign Exchange Earnings
NATURE OF FISCAL POLICY
● Rationalization of product classification codes: The
rationalized standard product code structure for
indirect taxes. The change has resulted in reduced
disputes and litigations about product classification.
● Common accounting year for income tax: Taxation
policy has adopted standard accounting year (April-
March) for the purpose of income tax.
● Long term fiscal policy: Since 1986 budget, the
Government of India has introduced long term fiscal
policy to provide greater certainties in its budgetary
policies and to improve the overall environment of
business.
● Impact on rural employment: Generation of
employment is the main objective of the fiscal policy.
● Reliance on indirect taxes:
● Inadequate public sector contribution:
SIGNIFICANCE OF FISCAL POLICY
● Capital formation
● Mobilization of resources
● Incentives to savings
● Inducement to private sector
● Alleviation of poverty and unemployment
● Reduction in inequality
● PUBLIC REVENUES
● Any public authority or Government needs income for the
performance of a variety of functions and meeting its
expenditure. The income of the Government through all
sources is called public income or public revenue.
According to Dalton, public income can be classified as
Public Revenue and Public
● Any public authority or Government needs income for the
performance of a variety of functions and meeting its
expenditure.
● The income of the Government through all sources is called
CONTD,.
● Public Revenue:
● Public revenue refers to income of a Government from all sources raised, in
order to meet public expenditure. Public revenue consists of taxes, revenue
from administrative activities like fines, fees, income from public
enterprises, gifts and grants.
● Public Receipts
● It includes public revenue plus the receipts from public borrowings, the
receipts from sale of public assets and printing and issuing new currency
notes.
● It includes other sources of public income along with public revenue. Public
Revenue can be classified as Tax Revenue and Non - Tax Revenue.
Sources of Public Re venue
● Public revenue is divided into two groups:
● Tax Revenue and Non - tax Revenue
● Tax Revenue
● The revenue raised by the Government through various taxes is known as
● tax revenue. Tax revenue is the most important source of public revenue.
● A tax is a compulsory payment levied by the Government on individuals or
companies to meet the expenditure which is required for public welfare.
CONTD,.
● 2) Profits of Government Enterprises:
● The Government gets revenue by way of surplus from
public enterprises. For E.g.: - Surplus from railways,
telephones, profits of state undertakings etc. Earnings
from state enterprises depend on prices charged by
them for their goods and services and the surplus
derived.
● 3) Gifts and Grants:
● Gifts are voluntary contributions by individuals or
institutions to the Government. Gifts are important
source of revenue during the times of war and
emergency. There is no element of quid-pro-quo. The
donor may not get anything in return.
● In modern day grants from one Government to another
is an important source of revenue. Grants are provided
by Central Government to State Governments or by
State Governments to local authorities to carry out their
functions. Grants from foreign countries are known as
foreign aid.
CONTD,.
● PUBLIC DEBT
● Public debt refers to Government debt. It refers to
Government borrowings from individuals, financial
institutions, organizations and foreign countries. If
revenue collected through taxes and other sources
is not adequate to cover expenditure, the
Government may resort to borrowings. Thus public
debt is one of the instruments to cover deficits in
budget.
● Types of Public Debt
● Internal And External Debt
● Short Term, Medium Term And Long - Term Debt
● Productive And Unproductive Debt
● Redeemable And Irredeemable Debt
● Funded And Unfunded Debt
CONTD,.
● PUBLIC EXPENDITURE
● Public Expenditure refers to Government Expenditure. It is incurred by
Central and State Governments. The Public Expenditure is incurred on
various activities for the welfare of the people and also for the economic
development, especially in developing countries. In other words The
Expenditure incurred by Public authorities like Central, State and local
Governments to satisfy the collective social wants of the people is known
as public expenditure.
● NEED IMPORTANCE/SIGNIFICANCE OF PUBLIC EXPENDITURE:
In modern economic activities public expenditure has to play an
important role. It helps to accelerate economic growth and ensure
economic stability. Public Expenditure can promote economic
development as follows:
● To promote rapid economic development.
● To promote trade and commerce.
● To promote rural development
● To promote balanced regional growth
● To develop agricultural and industrial sectors
● To build socio-economic overheads eg. Roadways, railways, power etc.
● To exploit and develop mineral resources like coal and oil.
● To provide collective wants and maximize social welfare.
CONTD,.
● Internal and External Debt
● Internal Debt: Government borrowings within the
country are known as internal debt. Public loans
floated within the country are called internal debt.
The various internal sources from which the
Government borrows include individuals, banks,
business firms and others. The various
instruments of internal debt include market loans,
bonds, treasury bills, ways and means advances
etc.
● External Debt: Borrowings by the Government from
abroad is known as external debt. The external
debt comprises of Loans from World Bank, Asian
Development Bank, etc. External loans help to take
up various developmental programmes in
developing and underdeveloped countries.
CONTD,.
● Short Term, Medium Term and Long - Term Debt
● Short Term Debt: Loans for a period of less than one
year are known as short - term debt. For Ex. The treasury
bills are issued by RBI on behalf of the Government to
raise funds for a period of 91 days and 182 days.
Interest rates on such loans are very low. To cover the
temporary deficits in budget short - term loans are
taken.
● Medium - Term Debt: The period of medium term debt is
normally for a period above one year and up to 5 years.
One of the main forms of medium term debt is by way of
market loans. The interest rates on medium term loans
are reasonable. These are preferred to meet expenditure
on health, education, relief work etc.
● Long - Term Debt: Loans for a period exceeding 5 years
are called long - term debt. One of the main forms of
long term loans is by way of issue of bonds. Long term
debt is required for the purpose of retirement of debts
and also for the purpose of development projects.
CONTD,.
● Productive and Unproductive Debt
● Productive Debt: Public debt is said to be productive when it is raised for productive
purposes and is used to add to the productive capacity of the economy. These loans
are normally long - term in nature. These loans are utilized on development activities
such as infrastructure development like roadways, railways, airports, seaports, power
generation, telecommunications
● Unproductive Debt: An unproductive debt is one which does not yield any income. It
does not add to the productive assets of the country. For Ex. debts utilized for transfer
payments in form of subsidies, old age pension, special incentives to weaker sections
Redeemable and Irredeemable Debt
● Redeemable Debt: Loans which Government promises to pay off at some future date
are called redeemable debts. Their maturity period is fixed. The Government has to
make arrangements to repay the principal and interest on due date.
● Irredeemable Debt: Loans for which no promise is made by the Government regarding
their exact date of repayment are called irredeemable debts. Such debt has no maturity
period. The Government may pay interest regularly. Normally, Government does not
resort to such borrowings.
● Funded and Unfunded Debt
● Funded Debt: Funded debt is normally obtained on long - term basis. The interest on
funded debt must be paid regularly. But the Government has the option to repay the
principal. If market conditions are favorable Government may repay it before maturity.
● Unfunded Debt: Unfunded debts are of short term. They are also known as floating debt.
Unfunded debts are incurred to meet temporary needs of the Government. The rate of
interest is low. There is no special fund created to repay this debt.
Industrial policies and their significance
● Industrial Policies:
● 1. Industrial Policy Resolution of 1948
● 2. Industrial Policy Resolution of 1956
● 3. Industrial Policy Resolution of 1973
● 4. Industrial Policy Resolution of 1977
● 5. Industrial Policy Resolution of 1980
● 6. The New Industrial Policy of 1991
● Industrial Policy Resolution of 1948 :
● The first industrial policy resolution was introduced by the Indian Government on 6 April in 1948.
The policy resolution emphasized the importance of the state in the growth of industry.
● Importance of industrial policy 1948
● 1. Different Labour laws, such as, minimum wage act, employees state insurance act, Labour
welfare act, etc., were passed for the welfare and betterment of the workers.
● 2. Nationalization of limited but important industrial sector to strengthen the economy.
● 3. A mixed economy pattern was adopted under which private, public and cooperative sectors
were involved The industrial activities were divided into four broad areas:
● 1. Industries where state had monopoly: This category includes arms and ammunition, atomic
energy and rail transport where they had been governed by state.
● 2. Mixed Sector: This category includes 6 industries coal, iron and steel, aircraft manufacture,
shipbuilding, telephones, telegraphs, and wireless apparatus and mineral oils.
● 3. Field of Government Control: This category includes 18 industries such as automobiles, Heavy
chemicals, heavy machinery, machine tools, etc.
● 4. Private Sector: It includes all the remaining all other items left to the private sector.
CONTD,.
● Industrial policy resolution of 1956:
● After the adoption of the industrial policy resolution of 1948, significant development took
place in the country. When India became republic, the first five year plan was visualized. The
socialistic pattern of society was accepted by the parliament as the basic aim of social and
economic policy. The concept of mixed economy was recognized as the basis for the
national economic policy. All these aspects cleared the way for a new policy and the second
industrial policy resolution was announced on 30 April, 1956.
● The classification of industries under three heads, viz., Schedule A, schedule B, and
schedule C, made in this policy are still being followed.
● Classification of industries Schedule A-
● 1. Arms and ammunitions and defense equipment,
● 2. Atomic energy Heavy castings and forging of iron and steel.
● 3. Iron and steel Heavy plant and machinery required for iron and steel production. Mining,
machinery tools, and other basic industries.
● 4. Heavy electrical plant
● 5. Coal and lignite Mineral oils,
● 6. Mining of iron ore, manganese ore, chrome ore, gypsum, gold, diamonds, and sulphur
● 7. Mining and processing of copper, zinc, lead, tin.
● 8. Minerals as per Atomic Energy Order, 1953.
● 9. Aircraft
● 10. Air transport,
● 11. Railway transport
● 12. Shipbuilding,
● 13. Telephones and telephones cable, telegraph and wireless
● 14. Generation and distribution of electricity.
CONTD,.
● Schedule B
● 1. Other minerals excepting minor minerals defined in the minerals concession rules.
● 2. Aluminum and other non-ferrous metals not included in schedule A
● 3. Ferro alloys and tool steels
● 4. Machine tools Manufacture of drugs
● 5. Antibiotics and other essential drugs
● 6. Fertilizers
● 7. Synthetic rubber
● 8. Carbonization of coal
● 9. Chemical pulp
● 10. Road transport
● 11. Sea transport.
● Schedule ‘C’ : The industries where state is exclusively responsible comes under schedule
‘A’, which include 17 industries while the progressively owned state industries comes under
schedule “B” which include 12 industries. Schedule ‘C’ include private industries. The
development of industries of this category was left to the private enterprises. This sector is
control under industries (Development and Regulation) Act, 1951.
● Objective and importance of industrial policy, 1956
● 1. To accelerate the rate of economic growth and speed up industrialization.
● 2. To develop heavy industries and machine making industries
● 3. To prevent monopolies and concentration of economic power in different fields I the
hands of a few individuals.
● 4. To expand the public sector
● 5. To build up large and growing cooperative sector
● 6. To reduce disparities in income and wealth
CONTD,.
● Industrial Licensing: 1. Industrial licensing abolished for all projects except a short list of
18 industries related to security and strategic concerns, social reasons, hazardous
chemicals etc. (Annex II)
● 2. Areas where security & strategic concerns predominate reserved for public sector.
(Annex I)
● 3. In projects where imported capital goods are required, automatic clearance given.
● 4. In locations other than cities of more than 1 million population, no requirement of
obtaining industrial approvals from Central Government.
● 5. Incentives & investments in infrastructural development, to promote dispersal to rural
and backward areas.
● 6. Existing units enabled to produce any article without additional investment.
● Foreign Investment:
● 1. Approval up to 51 percent foreign equity in high priority industries.(Annex-III)
● 2. Imports governed by general policy applicable to other domestic units, payment of
dividends monitored by RBI to ensure that outflows on account of dividends are balanced
by export earnings.
● 3. Other foreign equity proposals, not covered above, need prior clearance.
● 4. A special Empowered Board- to negotiate with a number of large international firms & get
FDIs approved.
● Foreign Technology Agreements:
● 1. Automatic permissions for foreign technology agreements in high priority industries
(Annex-III) up to a lump sum payment of Rs. 1 crore.
● 2. For industries other than those in Annex III, automatic permissions if no foreign exchange
is required for payment
● 3. All other proposals need specific approval
● 4. No permission for foreign technicians, foreign testing of indigenously developed
technologies
CONTD,.
● Public Sector Policy:
● 1. Portfolio of public sector investments reviewed with a view to
focus public sector on strategic, high tech & essential
infrastructure.
● 2. Chronically sick public enterprises, referred to Board of
Industrial & Financial Reconstruction (BIFR).
● 3. A part of government’s shareholding in public sector offered to
mutual funds, financial institutions, public & workers.
● 4. Boards of public sector companies- more professional &
powerful.
● 5. MOU system- managements would be granted greater
autonomy & held accountable.
● MRTP Act: (Monopolistic Restrictive Trade Practices):
● 1. Removal of threshold limits of assets in respect of MRTP
Companies & dominant undertakings.
● 2. Elimination of need of prior approval of Central Government for
establishment, expanding, merger, amalgamation & takeover.
● 3. Emphasis on controlling & regulating monopolistic, restrictive &
unfair trade practices.
● 4. Enabling the MRTP Commission to exercise punitive &
compensatory powers.
Regulatory and promotional framework
● The Planning Commission was set up by a Resolution of
the Government of India in March 1950 in pursuance of
declared objectives of the Government to promote a rapid
rise in the standard of living of the people by efficient
exploitation of the resources of the country, increasing
production and offering opportunities to all for employment
in the service of the community.
● The Planning Commission was charged with the
responsibility of making assessment of all resources of the
country, augmenting deficient resources, formulating plans
for the most effective and balanced utilization of resources
and determining priorities.
● Plan objectives:
● To deal with disparity of income and wealth
● Govt. activism required for socially desirable activities with
available resources and foreign exchange
● Govt. intervention required for development of
infrastructure
CONTD,.
● Economic growth
● In 12th five year plan, 9% GDP growth is expected. Higher
investment and fund mobilization will induce market development
and employment.
● Well regulated and integrated markets would generate enough jobs
and live hood opportunities. Development through efficient capital
markets and public private partnership will further boost the
economy and thus may sustain the growth rate of 9 %.
● Growth of a sector through PPP model would lead to
decentralization of economies and inclusion of various sectors,
such that a parallel economic development is induced from this
multi- sectorial growth approach.
● Agriculture
● India is now self-dependent for domestic food demands as a result
of green revolution and previous five year plans. Rural economy
growth has to be enhanced by sustained agriculture growth and
development of rural areas by providing rural infrastructure and
amenities.
● A balanced regional development can be achieved through agro-
dependent sectors.
● Innovative technologies and open-market economies would
enhance Human Development Index of rural population. For all
perishable products investments and institutional development are
Structure of Indian Economy
1. Low per capita income:
● In underdeveloped countries, per capita real income is very low
compared to the developed countries. As per the world development
report 2007, the per capita income (GNI) of India in 2005 was $720. This
is quite low then compared with the developed economics of different
nations. When comparing the purchasing power parity (PPP) of India and
America in 2005, India was found to be one twelfth of American’s PPP.
The per capita income in underdeveloped countries is as low as 7% of the
per capita income in some of the advanced nations.
2. Mass poverty and inequitable distribution of income: Income
inequalities lead to mass poverty and unequal distribution of income is
due to inequality in asset distribution. This has also enhanced due to
liberalization policies. The rick took a large percentage of the total
income distribution as compared to what the poor received. The higher
income people are usually private sector-owners, managers and workers,
public sector-managers and workers and small family farmers in
prosperous rural areas.
● Predominance of Agriculture: Most of the less develop countries like
India depends upon agriculture sector. The majority of population is
engaged in agriculture. But unfortunately agriculture is hope led in a
CONTD,.
● Rapid population growth and high dependency:
● In 2004 the population of India was growing at the rate of 1.44% P.A and was
about 1065 million.
● Birth rate is high as compared to the death rates and all of this also
contributes to the population.
● A rapidly increasing population poses a lot of problems:
● a. The economic growth rate must match the population growth rate so that
the standard of living is kept at a specific level not low.
● b. The growing population daily essential requirements also increase whereby
supply should match the demand.
● c. Large populations mean more workforces which in turn mean employment
for all. But if the demand does not much of development or expansion of the
industries to accommodate the Labour force.
● 5. Scarcity of capital and underdeveloped natural resource:
● India is a country which has abundant renewable and non-renewable resource.
Renewable resource is source of water, tanks, canals, rivers and so on.
● While non-renewable resources are minerals. But these resources have not
utilized properly because of the lace of capital.
● The scarcity of capital is because of the lack of technical knowledge which
results in a low rate of production and ultimately low consumption of steel,
cement and electricity.
CONTD,.
● 6. Unemployment:
● In India there is unemployment due to a large population the supply of
Labour being more than the demand.
● There is deficiency of capital in the Indian economy whereby there is not
much of development or expansion of the industries to accommodate
the Labour force. 7. 7. Technological backwardness:
● India still uses outdated technology.
● There still exist a wide gap between the sophisticated production
techniques of the developed countries and Indian technology.
● The reason is due to the poverty of living. This has led to a continuous
low production of output.
● 8. Lack of entrepreneurs:
● In India businessmen are concerned about profits only and do not
contribute much towards the long term industrial development of the
country.
● 9. Poor quality of Human capital:
● India is the land of superstition, conservation and labors. Illiteracy is
found amongst majority of the population
Economic Planning- Objectives, Merits Limitations
● Forest economies and tribal societies need greater protection and
promotion Transportation
● In order to attain an overall growth urban governance, urban
renewal, finance and urban transportation reforms should be
focused.
● Adequate transport facilities would result in efficient distribution
network, thereby reducing in accessibility and consequently save
the cost involved. Improved connectivity would also help in
managing urbanization and reduction of migration in metro cities,
leading to development of small and medium town.
● Energy efficient transport systems needs to be incorporated with
emphasis on eco-friendly and renewable resources.
● Environment
● With the fast pace of industrialization, India is already loosing
area under forest cover rapidly. More human interventions will
lead to severe loss of habitat.
● Environmental degradation and ecological imbalance are the two
aspects which result out of development initiatives at local and
global levels. Growth of economy without compromising on
environment is a key issue to be addressed as, sustainable growth
is essential now.
● Technological advancement, equitable distribution, affordability
along with public awareness is major points of concern.
CONTD,.
● Shortage of qualified medical personnel at all levels is a major hurdle in
improving the outreach of the healthcare system, especially the public
health facilities.
● Energy
● Energy being the wheel of growth has to be focused to ensure faster and
inclusive growth.
● Dependency on traditional energy resources has to be reduced with more
emphasis on domestic renewable energy production. Use of Non
Renewable Sources of Energy being restricted to priority based industries
while promoting Non-Conventional Energy Resources for rest of the
sector.
● Nuclear power program must continue, with necessary safety review.
Active efforts need to be made to allay the apprehensions of people
regarding the safety of nuclear power plants.
● Solar mission is seriously underfunded and requires more support. Wind
power too requires greater support, especially for off-shore locations
which have not been sufficiently explored
● Education
● Education being a concerned sector in five year plans has to be now
emphasized more on accessibility, affordability and quality.
● The employability is to be increased for optimum exploitation of human
resources. Improvement in educational infrastructure, research and
developments.
Political Environment:
● Countries also have different philosophies of government which
reflect not only the laws and rules, but how individuals are treated.
There are three political philosophies:
● 1. Capitalism: Capitalism features private ownership of businesses
and marketplace competition. It is the same as a free enterprise
system. The political system most frequently associated with
capitalism is democracy.
● 2. Socialism: The main goal of socialism is to keep prices low for
all people and to provide employment for many. The government
runs key industries, generally in telecommunications, mining,
transportation, and banking. Socialist countries tend to have more
social services.
● 3. Communism: Have a totalitarian form of government; this means
that the government runs everything and makes all decisions.
Theoretically, there is no unemployment in communist countries.
The government decides the type of schooling people will receive
and also tells them where to live.
● Many countries are in transition from either communism or
socialism to capitalism.
● Privatization is a common aspect of transition from a command
economy to free enterprise system. Privatization means state-
owned industries are sold to private individuals and companies.
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