ECONOMIC ENVIRONMENT OF BUSINESS

UNIT-ONE

1. Types of environment
2. Internal external micro macro environment
3. Competitive structure of industries
4. Competitor and industry analysis
5. Nature and structure of Indian economy
6. Economic condition
7. Economic planning
8. Five year planning
9. Economic reforms of India
SIMPLE ECONOMY IN ANCIENT INDIA
Industrial revolution
 production for global market
 stability in the political environment must for Business activity
 Consumer wants economic comforts with buoyant economic activity

Business covers a complex field of industry and commerce which involves

activity related to both production and distribution. These activities on the
other hand satisfy the needs and desires and also bring profits to business
firms.

All the business activity are motivated by profits , In case any of these
activities is carried out by some organization for other purpose which is
not profit seeking will not be considered as business, like producing and
distributing during war like situation without pricing it.
 WHAT IS BUSINESS???

Business may be understood as the organized efforts

of enterprises to supply consumers with goods and
services for a profit
CONTEMPORARY BUSINESS GOALS

 Profit (Bottom-line)
 Growth

 Market Leadership

 Customer satisfaction

 Employee satisfaction

 Quality Products & Services

 Service to Society
 WHAT DO YOU MEAN BY BUSINESS
ENVIRONMENT???

The environment of any organization is “ the

aggregate of all conditions, events and influences
that surround and affect it.”
Characteristics of Business Environment:
 Complex

 Dynamic

 Multi-faceted

 Far- reaching impact

 WHY STUDY BUSINESS ENVIRONMENT

 Development of broad strategies to ensure

sustainability

 Toforesee the impact of socio-economic changes at

the national and international levels on firm’s
ability

 Analysis of competitor’s strategies and formulation

of effective counter measures

 To keep oneself dynamic

 NATURE OF MODERN BUSINESS

1. Mutual relationship with Environment and

Business-
• In India only 8 companies list in Fortune List. No business can work
without the element of legal , political, social cultural and economic
environment
• Success and failure of the business is depend on the changes in the
environment
• Environment gives raw material capital manpower and energy etc to
business which is later converted to finished goods and return back to the
environment
• Existing economy depends on the demand , in absence of this , there can
be major failure for all business activity
• consumer behavior explain that why color television has been replaced by
black and white, why frost free refrigerators have replaced direct cooling
refrigerators, motor cycles have replaced scooters, smart phones have
replace ordinary phones and examples continues…
• business through its innovation has to find the way and space to create a
new product and satisfy the consumers
 2. ENVIRONMENT IS DYNAMIC:-
•It is difficult for any business to remain constant for long period of
time
• Environment requires the changes according to the taste and
preference of the consumer behavior
• need to change according to the change of the government and its
policies
• upgrade the technology and innovate its standards
• all these macro environment issues affect the working of the
business
• so ability to adapt the change and implementing them in to action
leads to the success and growth and business
 3. BUSINESS LACKS CONTROL OVER ENVIRONMENT:-

• Business environment keeps on changing continuously

• business can influence the internal drastically as external environment is
highly controllable

4. INTERNAL AND EXTERNAL FACTOR:-

•These both effect the affairs of business activity
•‘ like business objective, policies and staff members
• external environment comprises of the factors like consumers, competitors,
suppliers, society and so on
• macro factors are PESTE…

5. Environment is Complex:-
•Traditionally the business were not very complex but now, business is more
unstable by nature
• scope of modern business is more wider and complex
• changes is more than expected due to unfavorable social changes and more
interferences of government
•
 6. Environment is multi- facet:-
• there is always a positive and negative outcome of the business activity
• changes can be positive for one company but threat to other company as well

7. Opportunities and obstacles:-

• business is flexible in nature
•So any business can act as an opportunity and obstacle to organization
• Opportunity extend scope for expansion and where as obstacles helps to
maintain competition.

8 Regulates the scope of business:-

• business organization is executed in a framework
• for perfect growth the change should be analyzed and adapted efficeintly

9. Impact
• impact of environment is long lasting
•So business analysis and diagnosis has to be performed for assessing the
opportunity and threat. To formulate strategy, implement the policy, avoid
risks and threats of environment
10. Oligopolistic Character:-

This characteristics is viewed as small number of firms selling

homogeneous or a differenced product

Profit maximization conditions

An oligopoly maximizes profits.
Ability to set
price
Oligopolies are price setters rather than price takers.[2]
Entry and exit
Barriers to entry are high.[3] The most important barriers are government licenses, economies of
scale, patents, access to expensive and complex technology, and strategic actions by
incumbent firms designed to discourage or destroy nascent firms. Additional sources of
barriers to entry often result from government regulation favoring existing firms making it
difficult for new firms to enter the market.[4]
Number of firms
"Few" – a "handful" of sellers.[3] There are so few firms that the actions of one firm can influence
the actions of the other firms.[5]
Long run profits
Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from
entering market to capture excess profits.
Product differentiation
Product may be homogeneous (steel) or differentiated (automobiles).[4]
Perfect knowledge
Assumptions about perfect knowledge vary but the knowledge of various economic factors can be
generally described as selective. Oligopolies have perfect knowledge of their own cost and
demand functions but their inter-firm information may be incomplete. Buyers have only
imperfect knowledge as to price,[3] cost and product quality.
SCOPE OF ENVIRONMENT BUSINESS:-

Strategies Competitor
and policies analysis

Dynamism
Adjustment
and impact
Importance of Business Environment:-

First mover Customer Change

advantage focus agent

Early
Strategy Directing
warning
formulation growth
signal

Continuous Image
learning building
1. Pandora (which spearheaded the online radio fad)
2. Ebay (which was the first to implement an active online consumer
auction process)
3. Xerox (which invented, and for 15 years dominated, the photocopying
industry)
4. Coca Cola (which, obviously, created the first cola-flavored soft drink)
5. Apple (which was the first to introduce real touch screen tech;
admittedly, its control of this market may be eroding as competitors try
to out-innovate Apple)
Challenges of business environment:-

Economic and
market condition

Customer need
and demand

competitors

New opportunities
or threats
 Characteristic of the market in to which a firm is
entering or in to which a new product will be
introduced , no. of competitors, level of intensity of
competition, market growth rate

Economic conditions refer to the state of the

economy in a country or region.

They change over time in line with the economic

and business cycles, as an economy goes through
expansion and contraction. Economic conditions
are considered to be sound or positive when an
economy is expanding and are considered to be
adverse or negative when an economy is
contracting.
BUSINESS CHALLENGES
 Managing Bottom line

 Meeting stakeholders expectations

 Developing and retaining top talent

 Creating a customer responsive organization

 Diminishing time to market

 Market alertness

 Pricing and quality

CHARACTERISTICS OF BUSINESS

Change
Govern
Large
ment
Size
Control

Characterist
Compet ics Diversifi
of
ition Business cation

Informa Globaliz
tion ation
Technol
ogy
INDIAN COMPANIES – FORTUNE 500
 8 Indian companies have made it to Fortune 500 list
in 2010. These are:
 Indian Oil Corporation
 Reliance Industries

 Tata Steel
 Tata Motors

 Bharat Petroleum

 Hindustan Petroleum

 State Bank of India

 ONGC
CONTD..

The league of 500 elite companies for 2010 is topped by

U.S. retailer Wal-Mart Stores, followed by oil giant
Royal Dutch Shell and another oil major, Exxon Mobil,
in that order.

A total of 54 Chinese companies made it onto the list

this year. Out of which three are in fortune 10 list
 Revenues Profits
Rank Company
($ millions) ($ millions)

1 Wal-Mart Stores 408214 14335

2 Royal Dutch Shell 285129 12518

3 Exxon Mobil 284650 19280

4 BP 246138 16578

5 Toyota Motor 204106 2256

6 Japan Post Holdings 202196 4849

7 Sinopec 187518 5756

8 State Grid 184496 -343

9 AXA 175257 5012

China National
10 165496 10272
Petroleum (CNPC)
 EXTERNAL ENVIRONMENT

 Includes all factors outside the organization

which provide opportunities or pose threats to
the organization

 Uncontrollable factors

 Consists of Micro and Macro environment

MICRO ENVIRONMENT

“It consists of the factors in the

company’s immediate environment
that affect the performance of the
company”.
MICRO ENVIRONMENT FACTORS

 Suppliers
Customers
Marketing Intermediaries
Competitors
 Publics

Financial Community
MICRO ENVIRONMENT OF A TYPICAL CAR
MANUFACTURER

Potential
Supplier

Components
Supplier

Local Potential
Communities Customers

Stakeholders Customers
Customers

Car
Pressure
Manufacturer
Groups

Government Competitors Car Dealers

Potential
Dealers

For For
Customers Supplies
A pressure group, also known as an interest group or lobby, is an
organization formed by like-minded people who seek to influence PUBLIC
POLICY to promote an interest.

Pressure groups exist in all modern pluralist democracies and have

sprung up on all sides. Some defend producer interests.
MACRO ENVIRONMENT

It comprises general trends and forces that may

not immediately affect the organization but
sooner or later will alter the way organization
operates.

Macro Environment :-
 Economic

 Non Economic
ECONOMIC ENVIRONMENT
 Economic stages that exists at a given time in a country
 Economic system that is adopted by a country for
example. Capitalistic, Socialistic or Mixed Economy
 Economic planning, such as five year plans, budgets, etc.
 Economic policies for example, monetary, industrial and
fiscal policies
 Economic Indices such as National Income, Per Capital
Income, Disposable Income, Rate of growth of GNP,
Distribution of Income, Rate of savings, Balance of
Payments etc.
 Economic Problems
 Functioning of economy
Capitalism is an economic system in "mixed economy" refers
which capital goods are owned by private to market economies with
individuals or businesses. The strong regulatory oversight
production of goods and services is based and governmental provision
on supply and demand in the general of public goods, although some
market (market economy), rather than mixed economies also feature
through central planning a number of state-run
(planned economy or enterprises.
command economy).
India, England,
The United States of and Canada.
America. Canada.
Germany. The United
Kingdom.
Japan. South Korea.
Bangladesh

Socialist means the system under which

economic system is controlled and China. Denmark. Finland.
regulated by the government so as to Netherlands.
ensure welfare and equal opportunity to Canada. Sweden. Norway.
the people in a society. Ireland.
NON ECONOMIC ENVIRONMENT

 Regulatory Environment

 Socio- Cultural Environment

 Demographic Environment

 Technological Environment

 Political Environment
NON- ECONOMIC ENVIRONMENT
 Cultural Environment

 Social Customs & Rituals and practices

 Lifestyle patterns

 Family structure

 Role & position of men, women, children and aged in

family & society
NON- ECONOMIC ENVIRONMENT
 Demographic Environment

 Growth of population

 Age Composition

 Life Expectancy

 Sex Ratio

 Fertility and Mortality rates

 Inter-state migration
MACRO ENVIRONMENT
 Technological Environment
 Sources of technology
 Technological development
 Impact of technology
 Political Environment
 Political parties in power
 Political Philosophy
MACRO ENVIRONMENT
 Regulatory Environment

 Constitutional framework

 Policies relating to pricing and foreign investment

 Policies related to the public sector, SSIs,

development of backward areas and control of
environmental pollution
INTERNATIONAL ENVIRONMENT
Important factors that operate at global level which have an impact on
organization are:

 Growth of world economy

 Distribution of world GDP

 International institutions IMF,WTO ILO

 Economic relations between nations

 Global human resource-nature and quality of skills, mobility of labor

 Global technology and quality standards

 Global demographic patterns

ENVIRONMENTAL ANALYSIS

Environmental Scanning
The process by which organizations monitor
their opportunities and threats affecting their
business is known as environmental scanning

SWOT Analysis
TOOLS FOR ANALYZING THE
ENVIRONMENT
 PEST Analysis
 PESTLE
 STEEPLE
 S - Social
 T - Technological
 E - Economic
 E - Environmental
 P - Political
 L - Legal
 E - Ethical
GLOBAL COMPETIVENESS INDEX

 The World Economic Forum has ranked 139

economies in its 2010-2011 Global
Competitiveness Report.
 In overall competitiveness India scores a passable 51st
place. It ranks notably ahead of Latin America’s
powerhouse Brazil (58) and way ahead of its
neighbors Pakistan (123), Sri Lanka (62) and
Bangladesh (107), but behind China (27).
 Switzerland tops the chart and USA is on 4th position
due to economic instability from 2007-10
DELHI TOPS 2010 RANKING OF INDIA'S MOST COMPETITIVE
CITY

 Chennai cornered the second position in the list ahead of Mumbai ,

which dropped to third place from second position last year.

Chennai's ranking improved on the back of good performance under

all the sub-indices used to benchmark the cities, particularly its
educated workforce and logistics infrastructure, while Mumbai's fall
was primarily due to the worsening state of its physical
infrastructure.

Bengaluru is at fourth place in the list, followed by Kolkata,

Hyderabad , Ahmedabad, Pune, Nagpur and Jaipur.

 Ahmedabad and Pune have emerged as the most competitive tier-

two cities in India.
External Business Environment
Those factors which are beyond the control of business enterprise are
included in external environment.

It is of two types
A- Micro
B- Macro

A- Micro Level External Business Environment

Those External micro environment consists of those external forces which

affect an organisation directly and are relevant for decision-making.
Every organisation tries to formulate its strategies based on the nature
and behaviour of such factors. Factors of external micro environment are as
follows:
 Competitors:
.
The competitive environment consists of certain basic things which every firm
has to take note of. No company, howsoever large it may be, enjoys monopoly.

In the original business world a company encounters various forms of

competition. The most common competition which a company’s product now
faces is from differentiated products of other companies.

For example, in the Colour Television Market, Philips TV faces competition

from other companies like Samsung, LG, Sony and others. This type of
competition is called brand competition. It is found in all durable product
markets.
The consumer wants to purchase a two-wheeler, the next question in his
mind is with gear or without gear, 100 cc or more than that, self starter or
kick starter, etc. This type is otherwise known as ‘Product form
competition’.

Philip Kotler is of the opinion that the best way for a company to grasp the
full range of its competition is to take the viewpoint of a buyer. What does a
buyer thinks about that which eventually leads to purchasing something?
So, tracing of the consumer mind set will help to retain the market share
for all the firms.
 Customers:
According to Peter. F. Drucker, “There is only one valid definition of business
purpose, that is to create a customer.” The business enterprises aim to earn
profit through serving the customer demand.

It now thinks more in terms of profitable sale rather than more sales volume
for its sake. Today marketing of a firm begins and also ends with the
customers.

Now a days, a business firm to be successful, must find customers for its
products. This is the reason the customers thus constitute the most important
element in the micro environment of business.

Products sales depend mainly on the degree of consumer satisfaction.

In fact, this is a reason that gives more importance to customer satisfaction
surveys.

Now every business firm set-up systems to regularly watch customer

attitude and customer satisfaction, because today it is universally accepted
that the satisfaction of customers is the base for company’s success.

Normally the customers are not in a same group, they are individuals,
business enterprises, institutions and government.

From the company’s point of view it is always better to have customer from
various groups and legions for that easily sustains demand for the
company’s product.
 Suppliers:
Regarding the suppliers, the organisation can think of availing the required
material or labour according to its manufacturing programme. It can adopt
such a purchase policy which gives bargaining power to the organisation.
According to Michael Porter, “the relationship between suppliers and the firm
epitomises a power equation between them. This equation is based on the
industry conditions and the extent to which each of them is dependent on the
other.”

Suppliers are either individuals or business houses. They combined together;

provide resources that are needed by the company. Now the company
necessarily should go for developing specifications, searching for potential
suppliers, identifying and analysing the suppliers and thereafter choose those
suppliers who offer best mix of quality, delivery reliability, credit, warranties
and obviously low cost.
The development in the supplier’s environment has a substantial impact on
the operations of the company. In recent trends companies can lower their
supply cost and increase their product quality.
 Public:
Literally word ‘public’ refers to people in general. According to Philip Kotler, “A
public is any group that has an actual or potential interest in or impact on a
company’s ability to achieve its objectives.”

The environmentalists, consumer protection groups, media persons and local

people are some of the well-known examples of publics.

The company has a duty to satisfy the people at large along with competitors
and the consumers. It is an exercise which has a larger impact on the well-
being of the company for tomorrow s stay and growth. Create goodwill among
public, help to get a favourable response for a company. Kotler in this regard
has viewed that.
“.
Companies must put their primary energy into effectively managing their
relationships with their customers, distributors and suppliers.

Their overall success will be affected by how other publics in the society view
their activity. Companies would be wise to spend time monitoring all their
public understanding their needs and opinions and dealing with then
constructively.”

In the modern business public have assumed important role and their
presence in the micro environment of business
5. Marketing Intermediaries:

Market intermediaries are either individuals or business houses who come to

the aid of the company in promoting, selling and distributing the goods to the
ultimate consumers.

They are Middlemen (wholesalers, retailers and agents), distributing

agencies, market service agencies and financial institutions.

Most of the companies find, it is too difficult to reach the consumers. In such
a cases the agents and distribution firms help to reach the product to the
consumer.
 Any type of intermediary the company must take into active
consideration, the following aspects:
(i) The company has also to constantly review the performance of both
middlemen and others helping its efforts periodically. If necessary, it may
take recourse to replacement of those who no longer perform at the
expected level.

(ii) Middlemen come into being to help overcome the discrepancies in

quantities place, time, assortment and possession that would otherwise
exist in a given condition.

(iii) It is advantageous and also efficient to work through the established

Marketing channels instead of creating one and thus going for experiments

.
(iv) The manufacturer has to decide the most cost-effective method of
intermediaries to reach the product to consumer that will help to increase the
profit.
Macro Level External Business Environment

External Environment influences the actions and behavior of all business

enterprises. External environment consists of various factors and forces
that are beyond the control of the organization. These are also called
indirect factors.
 Economic Environment:

Economic environment refers to the economic factors and forces that

affect the functioning of the business enterprise.
The factors that affect the economic environment are :-

i) Economic policies:

The economic policies of the Government (Such as monetary policy, fiscal

policy, foreign policy, taxation policy, industry policy, licensing policy, labor
policy etc) have far reaching effects on the performance of all business
enterprises.

A particular policy can create either an opportunity or a threat to the business

enterprise. e.g the liberal policy of the government relating to the entry of
Multinational corporation in India may be a threat to small scale industries.
 Economic Conditions:-
The economic conditions of a country such as
1. availability of various resources,
2. per-capita income,
3. distribution pattern of income,
4. prices of goods and services,
5. rate of inflation,
6. present state of economic cycle,
7. rate of capital formation,
8. rate and growth of GNP< conditions of capital( assets) market
and stock market
All these can also influence the policies of all business enterprises.
The stage and rate of economic development determine the size
of domestic market affecting the business
Economic Systems:

The economic system prevailing in the country (such as Capitalistic or socialistic

or mixed economic system) affects all business enterprises to a great extent.
Economic system determines extent of control of the Government over the
activities of business enterprises.

The general economic

systems are changing rapidly.
Governments are trying to
introduce liberalization
globalization of business.
WTO has been playing a
significant role. Thus new
dimension of economy will
boost up new avenues for
business enterprises.
 Social and Cultural Environment:
There are many social and cultural factors like- social values and
beliefs of people, traditions , customs and conventions, family structures,
literacy level and education, work culture, awareness of rights, changing
life styles, society’s expectation from business etc. effect strategies of
all business concerns.

For example, celebration of Diwali, Id, Christmas, Guru Parv etc in India
provides significant opportunities for greetings cards and gift
manufacturing companies, sweets and confectionery producers, tailoring
outlets and many related business.

Similarly demand for branded consumer items is increasing rapidly among

middle and upper-middle class of people. People have become more
conscious of quality and safety of products.

Society has become more environment and health conscious.

Culture heritage of a particular region determines the types
of products to be produced and services to be rendered.
Life styles and needs of people are fast changing with the
change in culture and social environment.

Business enterprises should understand cultural

preferences and produce goods and services accordingly.
Modern life style has increased the demand for fast food
industry, automatic electric appliance and other life style
products.

Growing awareness about health has lead to demand for

health foods, gyms and exercise equipments, yoga and
other slimming centers.
 3. Technological Environment:
\

It includes forces relating to scientific improvements

and innovations which provide new ways of
producing goods and services and new methods
and techniques of operating a business.

For example, recent technological, advancement in

computers and electronic have modified the ways
in which companies advertise their products.
Internet has provided new opportunities and challenges to every
business.
Retailers have direct link with suppliers who refill their stocks
when needed.

Airlines, railways and other modes of transport offer online

services to people for booking and checking seat availability.
Banking transactions can be executed with a click of the mouse.

Advancement in the field of Engineering products and methods of

production has made it possible to undertake production on a
largest possible scale..

Invention of smart phones has changed the way businessmen use

their mobile phone for communication and excess their business
links.

Similarly modern transport system, automatic machines, extensive

research for new sources of energy (Atomic and Solar), bio
technology, improved production processes, collaboration and
transfer of technology between etc can have direct imp0act on the
working of modern business enterprises.
Prosperity of business depends upon the availability of
technical environment and sufficient number of skilled
technicians, engineers, etc.

The survival and success of business in the long run

also depends upon its ability to adapt to changes in
external technical environment.
Software industry, electronic goods industries, power and
energy industry etc. are more vulnerable to technology
changes.

Executives of these industries should be more alert while

framing their business strategies.
Political Environment:

Political factors have enormous influence on the decisions of the

business enterprise. The political system prevailing in a country
provides a framework within which business enterprises operate.

The political factors include:

 Stable political system – most essential for smooth functioning of

all business enterprises.

 The philosophy of all ruling party, strength of the opposition party

and intentions and ideology of the ruling party etc. – exert vital
influence on the policies of business enterprises.

 Political instability – due to terrorism, civil war, declaration of

President Rule etc can create adverse impact on the economic
prosperity of business enterprises.
Apprehension of political instability- discourage investors to invest
 Center – Stare relation has a vast impact on the growth and
development of business enterprises.
 Extent of Government intervention in the affairs of business –
effect the functioning of business enterprise.

 Coalition Government is the recent trend- it has led to the

instability in the political environment. Many Govt. program of
liberalization, globalization, disinvestment of public sectors etc.
could not be followed in line with international trends.

Therefore, political stability regime is the basic for the success and
growth of business enterprise.
Legal Environment:

Various legislations like Indian Companies Act, 1956; Income Tax Act, 1961; MRTP
Act, 1969; etc., are enacted by the Government to
regulate and control the activities of business enterprises. As a result, the policies of
the government are having a direct influence on the strategic decisions of all business
enterprises.
Factors and forces that form the legal environment include:
 Business Laws ( Contract Act, Sale of Goods Act, Negotiable Instrument Act,
Partnership Act, etc)
 Corporate and Economic Laws ( Companies Act, Patent Act, Trademark Act,
Essential Commodities Act, Consumer Protection Act, MRTP Act FEM Act, etc)
 Industrial and Labour Laws ( Factories Act, Industrial Disputes Act, Gratuity Act,
Payment of Bonus Act, Provident Funds Act, Trade Unions Act, Industrial
Development and Regulations Act, etc.)
 Taxation Laws – ( Income Tax Act, Sales Tax Act, Customs Act, Values Added Tax
Act etc)
 Pollution Control Laws (Air Pollution control Act, Environment Protection Act,
etc.)
These laws are amended from time to time ensure their relevance with the
changing times. Sometimes, government the amendments may create new
business opportunities for some business enterprises and threats to others.

Often government provides subsidies and incentives to small industries to help

them withstand competition from large industries.
INTERNAL ENVIRONMENT
 Refers to all the factors that are within an organization
which impart strengths or cause weaknesses of
strategic nature.

 Controllable factors. These include:

 Value system
 Mission and Objectives
 Management Structure and Nature
REFERENCES
 Business Environment by Vivek Mittal
 Business Environment – Managing in a
Strategic Context by John Kew & John
Stredwick
 International Business Environment-
Francis Cherunilam
 Business Environment – Misra & Puri
 Essentials of Business Environment – K.
Aswathappa
 Business Environment - Francis Cherunilam
GOVERNMENT CONTROL
 To correct market failures in case of externalities
 To create stable business conditions (stimulate
Aggregate Demand) through monetary & fiscal
regulation
 To provide Public goods
DIVERSIFICATION AS A GROWTH STRATEGY
 Diversification strategies are used to expand
firms' operations by adding markets, products,
services, or stages of production to the existing
business.
 When the new venture is strategically related to
the existing lines of business, it is called
Concentric diversification.
 Conglomerate diversification occurs when there
is no relationship between the new and old lines of
business; the new and old businesses are
unrelated.
 DIVERSIFICATION: VERTICAL OR
HORIZONTAL?
 Vertical
integration occurs when firms undertake
operations at different stages of production.

 When a firm diversifies closer to the sources of raw

materials in the stages of production, it is following a
backward vertical integration strategy.

 Forward diversification occurs when firms move

closer to the consumer in terms of the production
stages.
 GLOBALIZATION

 It
is a phenomenon which permits mobility of
factors of production across globe except land.

 Refersto a process of deepening economic

integration, increasing economic and growing
economic interdependence between countries in
the world economy.
COMPONENTS OF INTERNAL
ENVIRONMENT
 Human Resources
 Company Image and Brand Equity
 Other Factors
 Physical Assets and Facilities
 R & D and Technological Capabilities
 Marketing Resources
 Financial Resources
 1. Value system
The selection of the business , its mission, objectives, policies and practices
are elements of value systems.
Founders, board of directors and top management play an integral part to
form the value system of any organization.

2. Mission vision and objectives:-

Vision is a broader view to define the future of business, its aids in meeting
the objectives of the business

3. Management structure and nature:-

Business decision are persuaded by organizational structure , structure
comprises the protocol of an organization. Members in the organizational
structure are key for decisional role

4. Internal power relationship:-

Correlation and coordination amongst the various department in the
organizational structure is very important. More cohesive more smooth
functioning of the business
 5. Human resource:-
Human resource are the assets of organization and a very key component
of organization. Essential of HR is skill, quality, commitment, sincerity,
right attitude etc… employee participation and level of initiative varies and
is determined by organizational culture

6. Company Image and brand equity:-

Internal environment is affected by image that which is carried outside to
market. positive image helps to build capital. Raise fund, holds consumer,
helps in expansion, likewise brand equity enhances the market dominace of
the organization
Miscellaneous
factors

Physical assets
and facilities

• R&d

MARKETING
RESOURCES
Financial factors
 FROM ENVIRONMENTAL ANALYSIS
TO INDUSTRY ANALYSIS
Context: PEST
The national/ The natural
international environment
economy THE INDUSTRY
ENVIRONMENT
Company TJB Demographic
Technology • Suppliers X TJB structure
• Competitors
• Customers

Government Social structure

& Politics

•The Industry Environment lies at the core of the Macro Environment.

•The Macro Environment impacts the firm through its effect on the Industry
Environment.
 The Spectrum of Industry Structures

Perfect
Oligopoly Duopoly Monopoly
Competition

Concentration Many firms A few firms Two firms One firm

Entry and Exit No barriers Significant barriers High barriers

Barriers

Product Homogeneous
Differentiation Potential for product differentiation
Product

Perfect
Information Imperfect availability of information
Information flow
 PORTER’S FIVE FORCES OF
COMPETITION ** FRAMEWORK

SUPPLIERS
Bargaining power of suppliers

INDUSTRY
COMPETITORS

POTENTIAL Threat of Threat of

SUBSTITUTES
ENTRANTS
new Rivalry among substitutes
entrants existing firms

Bargaining power of buyers

Book
BUYERS
 THREAT OF SUBSTITUTES

Extent of competitive pressure from producers of

substitutes depends upon:

 Buyers’ propensity to substitute

 The price-performance characteristics of substitutes.

My worksheet
 THE THREAT OF ENTRY
Entrants’ threat to industry profitability depends
upon the height of barriers to entry. The principal
sources of barriers to entry are:

 Capital requirements
 Economies of scale
 Absolute cost advantage
 Product differentiation
 Access to channels of distribution
 Legal and regulatory barriers
 Retaliation
 BARGAINING POWER OF BUYERS

Buyer’s price sensitivity Relative bargaining power

• Cost of purchases as % • Size and concentration of

of buyer’s total costs. buyers relative to
• How differentiated is the sellers.
purchased item? • Buyer’s information .
• How intense is • Ability to backward
competition between integrate.
buyers?
• How important is the
item to quality of the Note: analysis of supplier
buyers’ own output? power is symmetric
RIVALRY BETWEEN ESTABLISHED
COMPETITORS

The extent to which industry profitability is depressed by

aggressive price competition depends upon:

 Concentration (number and size distribution of firms)

 Diversity of competitors (differences in goals, cost

structure, etc.)
 Product differentiation

 Excess capacity and exit barriers

 Cost conditions

 Extent of scale economies

 Ratio of fixed to variable costs
 THE DRIVING FORCES OF INDUSTRY EVOLUTION
BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION

Customers become
more knowledgeable Customers become
& experienced more price conscious
Quest for new
sources of
differentiation
Products become
more standardized

Diffusion of
Price competition
technology Production intensifies
Production shifts
becomes less R&D
to low-wage
& skill-intensive
countries

Excess capacity
increases
Demand growth Bargaining power
slows as market of distributors
saturation approaches Distribution channels increases
consolidate
What is Environmental Analysis?
Environmental analysis is a strategic tool. It is a process to identify all
the external and internal elements, which can affect the organization’s
performance.

The analysis entails assessing the level of threat or opportunity

the factors present.

These evaluations are later translated into the decision-making

process.
The analysis helps align strategies with the firm’s environment.
Our market is facing changes every day.
Many new things develop over time the whole scenario can alter
in only a few seconds. There are some factors that are beyond
your control.

But, you can control a lot of these things.

 LEVEL OF ENVIRONMETNAL ANALYSIS

ENVIRONMENTAL
SCANNING INDUSTRY COMPETITIVE
ANALYSIS ANALYSIS
 Process of environmental analysis

Understand the nature of environment

Analysis the past influence of environmental factors

IDENTIFY THE CRITICAL COMPETITIVE FORCES

PORTERS 5 Diamond Model

ANALYSIS STRATEGIC POSITION

Growth , attractiveness . Strategic group analysis, market segment
Market power and competitor analysis

Identify opportunity and threat

Techniques of Business Environmental
scanning

ETOP QUEST
( Environment threat & ( quick environmental
opportunities profile) scanning techniques )
ANALYSIS ANALYSIS

Techniques of
environment
scanning

SWOT PEST
ANALYSIS ANALYSIS
 Process of QUEST Analysis
1. Preparation of QUEST
• Define the environment issues
• select the members for the analysis
• Document the complete information about the past trends of the
environment relevant for the organization
• decide the location to carry out the analysis

2. Analyze the environment

• This steps starts with identifying the vision, mission and objectives,
• also to be taken in to account is past trends , organizational goals,
• cross impact of all these factors are analyzed to estimate the capacity and
strength of organization
• strategic leaders to develop and devote considerable time to analyze the
environment
 3. Document the discussion on the report :-
• once the environment is analyzed. The outcomes are combined and
presented in the form of report
• report has two parts–
•1. first deals with strategic intent( goal) where as
•2. discuss about the future possibilities.

4. Discuss the report

• top leaders of organization should discuss the documented report in a
meeting
• analyze the alternative course of action
• QUEST doesn’t suggest strategies to be made, , but
it highlights the issues and challenges to be
considered while formulating strategies
 FACTORS AFFECTING
ENVIRONMETNAL ANALYSIS

CUSTOMER COMPETITIVE
ENVIRONMENT ENVIRONMENT

INDUSTRY MACRO
ENVIRONMENT ENVIRONMENT
 Customer environment
1.tracing the feed backs of the customer
2. Needs and requirements of the customer
3. Assessment of return rates
4. Need of quality improvement and measurement
5. Assessing the level of competition from
present scenario
6. Possible substitutes from the customer
feedbacks
Competitive environment

1. Market segment
2. competitors analysis
3. past researchers and development
4. arrival of new competitors
5. patterns of market share
6. threat of new entrants and substitute
Industry environment

1. Different strategies adopted by industries

2. industry structure
3. changes in product or service offerings
4. modification in government regulations
5. sources of finance in the industry
6. past trends of the market
Macro environment

1.Socio economic factor

2. political factor
3. technological factors
4. demographic factor
 IMPORTANCE OF
ENVIRONMENTAL
ANALYSIS_
Predicts Identifies new
Continuous
opportunities growth
learning
and threats avenues

Provides more Build the

Warns against
time to routine image of the
threats
activity organization

Recognize
Identifies Analyze the
environmental
opportunities competitors
risks
Competitor analysis in marketing and strategic management is an assessment
of the strengths and weaknesses of current and potential competitors.

This analysis provides both an offensive and defensive strategic context to

identify opportunities and threats.

Profiling combines all of the relevant sources of competitor analysis into one
framework in the support of efficient and effective strategy formulation,
implementation, monitoring and adjustment.

Competitor analysis is an essential component of corporate strategy. It is argued

that most firms do not conduct this type of analysis systematically enough.

Contents
Instead, many enterprises operate on what is called "informal
impressions, conjectures, and intuition gained through the tidbits of
information about competitors every manager continually receives

As a result, traditional environmental scanning places many firms

at risk of dangerous competitive blindspots due to a lack of robust
competitor analysis.
One common and useful technique is constructing a competitor array. The
steps include:

Define the industry – scope and nature of the industry.

Determine who the competitors are.

Determine who the customers are and what benefits they expect.

Determine the key strengths – for example price, service, convenience,

inventory, etc.

Rank the key success factors by giving each one a weighting – The sum of
all the weightings must add up to one.

Rate each competitor on each of the key success factors.

Multiply each cell in the matrix by the factor weighting.

 Sources of information for competitor analysis
Recorded Observable Opportunistic
data Data data
• Annual report • Pricing / price • Meeting with
&Ac list suppliers
• press release • advertising • trade shows
and news campaigning • sales force
articles • promotions and meetings
• analyst reports tenders • seminar &
• regulatory • patent conferences
reports application • recruiting ex-
• government employee
reports • discussion with
• Presentation stake holders
and speeches • social contacts
with
competition
 No Wheels enough to catch up with Ghari;
detergent maker maintains market share
MUMBAI: Nearly one in every four detergents sold in the
country is Ghari as the Kanpur-based brand widened its gap
with Hindustan Unilever's Wheel, indicating its growing
dominance at the mass end of the laundry market. The
segment, that until five years ago had dominating all sub-
categories, is now demarcated with Ghari leading the
popular segment, and HUL controlling a bulk of the premium
and mid-market.
In fact, Ghari is now bigger than the next three
popular brands — Wheel, Sunlight, and NirmaBSE
0.06 % — all put together. Ghari's share at 22% has
remained unchanged in the past three years, but
similar priced brands have seen an erosion over the
period, according to officials quoting Nielsen data
for September.
 HUL's Wheel and Sunlight lost market share combined while
Nirma's share fell 30 bps. At an overall level, HUL is the
leader of the Rs 17,000 crore laundry market with a 37.4%
share and has gained nearly 20%, driven completely by its
premium brand Surf that surged to 14.8%. Over the same
period, P&G that sells Tide and Ariel lost to 15.7%. Nirma,
that evicted Surf from the top slot three decades ago, saw its
share reduce to just 3%.

Analysts said it reflects HUL's success in the premium market

even as it is slipping at the mass end. "The fact that none of the
mass brands including Ghari are growing share indicates a
strong premiumisation trend that HUL has been driving. As a
result, Surf now controls a larger pie in the premium category
while Ghari clearly dominates the mass-end even without
gaining share," said Abneesh Roy, senior vice president,
institutional equities, Edelweiss Securities. "HUL has gained at
the expense of P&G as the price differential between them has
widened compared to five years ago.“
Tide had nearly 10% higher price tag
compared to Rin. However, the gap has now
increased to about 25% over the past two
years as P&G followed a global mandate to
focus on profitability and shed lower
margins packs and brands. The laundry
market has three sub-segments — premium
that has brands such as Ariel and Surf, mid-
market dominated by Rin and Tide and
popular where Ghari, Wheel and Nirma
operate.
Rohit Surfactants Private Limited, India
www.gharidetergent.com/about_rspl.html
A Nielsen spokesperson said it couldn't verify or
validate brand specific numbers, as these are
confidential for clients.

A P&G Spokesperson said: "It is essential to note

that market data available may not provide the
accurate picture on our laundry business.

We have made strategic portfolio choices, which

were expected to impact the top line in the short
term, but should lead to balanced growth in the
long-term." HUL said it has strengthened its
consumer franchise in the laundry category, ..
In 2011, Ghari ousted Wheel to be the India's largest home and
personal care brand. RSPL, which was launched in 1987 by brothers
Muralidhar and Bimal Kumar Gyanchandani, is now a Rs 5,000-crore
company with Ghari alone contributing Rs 3,700 crore last fiscal. The
company, widely celebrated by many as an example of small town
entrepreneurial story, also sells other products including Venus soap,
Xpert dishwash and Namaste Dairy brand.

Within the economy segment, both Ghari and Wheel

are priced similar. "While our brand is positioned at
the mass-level, it has better quality compared with
some of the pricier rivals, a strategy that has
remained unchanged. We have also added over three
new states and manufacturing plants which added to
the growth," said Sushil Kumar Bajpai, president at
RSPL.
FACTORS AFFECTING COMPETITOR ANALYSIS

Competitor Competitor
objective assumption

Competitor Competitor
current resource &
strategy capability
IMPORTANCE OF COMPETITOR ANALYSIS
Identify
Provides Choosing
competitive
motivation competition
information

Hidden
Strategy Strategy
opportunities are
implementation development
revealed

Positioning Product Planning market

effectively development entry
 INTRODUCTION TO INDIAN ECONOMY:-
The economy of India is a developing mixed economy. It is the

world's sixth-largest economy by nominal GDP and the third-

largest by purchasing power parity (PPP).

The country ranks 141st in per capita GDP (nominal) with $1723 and 123rd

in per capita GDP (PPP) with $6,616 as of 2016. After 1991 economic

liberalisation, India achieved 6-7% average GDP growth annually. In FY

2015 and 2017 India's economy became the world's fastest growing major

economy surpassing China.

 ECONOMIC CONDITION OF INDIA
1. LOW PER CAPITA INCOME:-

• Underdeveloped country are marked with low per capita income

• when compared with other countries, India per capita income is very low
• U.S.A has 83 times higher than India per capita income in 2011
• the gap is exponentially rising
• India also has unequal distribution of wealth and Income
• It is the major cause of poverty

2. HIGH POPULATION DENSITY:-

• It’s a severe economic hurdle

• according to the census 2011, population of India was found 1.21 billion
• China still holds the first rank with 1.41 billion ( 1,415, 489,506 ) people
• India has 1.32 billion ( 1,322, 618,633) people
Per capita income or average
income measures the average
income earned per person in a given area
(city, region, country, etc.) in a specified
year. It is calculated by dividing the area's
total income by its total population.
3.DOMINANCE OF AGRICULTURE :-

•The backwardness of Indian economy is clearly revealed through its

occupational distribution of population
• large Indian population is engaged in agricultural activity
• large contribution comes from agricultural production which is a basic
characteristics of all underdeveloped and developed nations

4. LOW RATE OF CAPITAL FORMATION :-

• rate of capital formation depends on the value of the capital per head and
the saving capacity of the individual
• due to poor per capita income and income equalities,, the rate of capital
formation is very low,

5. BACKWARDNESS OF SOCIAL AND INSTITUTIONAL

FRAMEWORK:-
• social customs and traditions prevents the entrepreneurs from going beyond
the culture
• different social institutions act as a barriers in the road of success of the
economy.
6. POOR UTILISATION OF THE RESOURCES:

• despite having abundant natural and artificial resources supporting the

production , and manufacturing process, Indian economy is not able to
effectively utilize the available resources.

7. MARKET IMPERFECTIONS:-
• Due to absence of the mobility in the production process across the
economy, it is not possible to achieve the optimum utilization of resources,
• it results in fluctuations of the prices of the commodities
• even all the under developed nations, continuously face the same problem
• this variation increases with the scarcity of resources and due to widening
differences between demand and supply, increasing prices is making
difficult for the common man to maintain the decent living standard
 PRIMARY SECTOR
1. AGRICULTURE 1/3 POP.
2. FISHING
3. MINING
( iron, coal, uranium, diamond, rock slat ,
limestone, oil, potash, petroleum)

STRUCTURE OF SECONDARY SECTOR

1. INDUSTRY-raw-fin goods.

INDIAN ECONOMY 2. CONSTRUCTION

TERRITORY SECTOR
1. INSURANCE
2. BANKING
3. HOSPITALITY
4. TRANSPORT
EMERGING SECTOR OF INDIAN ECONOMY

FOOD PROCESSING HEALTH CARE TOURISM

MANUFACTURING
RETAIL ENTERTAINMENT
SECTOR

GEMS AND
JEWELLERY
IMPORTANCE OF THE INDIAN ECONOMY

Rapid pricing economy

High demographic dividend

15-34, 15-59( WORKING AGE)

Strong consumer market

Rising trend in the FDI flow

Demographic dividend refers to the growth in an
economy that is the resultant effect of a change in the age
structure of a country's population. The change in age
structure is typically brought on by a decline in fertility
and mortality rates.
CHALLENGES IN THE INDIAN ECONOMY

Large budget Rigid labor

Inflation
deficit laws

Poor Increased Inefficiency in

education level of agricultural
standard inequality production

Poor Balance of
infrastructure payments
ECONOMIC PLANNING

Economic planning, the process by which key

economic decisions are made or influenced by
central governments.

This includes government spending on the

various schemes and programs related
economic development, it’s a planning process
to achieve stability of economic condition of
country by effective utilisation of national
resources for the betterment for the
countryman
 100%
employment
Economic self
Social justice
reliance

alleviate Modernizatio
main n of the
bottlenecks economy

OBJECTIVES
Rapid OF Economic
economic
growth PLANNING IN stability
INDIA
 1. RAPID ECONOMIC GROWTH:-
• Economic growth can be measured by in crease in per capita income
• economic involves development in various sector like agriculture, power ,
transport, communication etc
• it also includes poverty reduction, improved standard of living, high literacy
rate
• since 1951, the five year plans, tons of efforts have put in to improve and
enhance economic growth rate
• 2014 India recorded economic growth rate of 5.6%

2. 100% Employment:-
• under-developed country face the problem of employment ‘
• Economic planning aims to attain full employment generation and eradicate
the maximum bottlenecks of employment

3 . Alleviating bottlenecks for :-

a) Level of agricultural production
b) capacity of manufacturing unit
c) balance of payments
 4. Economic self reliance:-
• standout independently
• 5 year plans intend to make self reliant in natural resources and power
rather than to remain dependent on foreign reserves
• importing various technology, natural resources and foreign investments
were highlight of few initial 5 year plan
• Importance of self reliance was analyzed during 4th five year plan.
• more emphasis was given to high agricultural production and export
promotion

5. Social justice:-
• it refers to equal distribution of wealth and income within a society
• no discrimination of rich or poor
• all should receive equal opportunities and privilege , following are the
important four aspects of social justice
To apply To ensure social
democratic and economic
principles in justice and
political structure eliminate religious
of nation imbalance

Aspects

To remove To uplift weaker

centralization of section of the
economic power society
 justification of economic planning
• Post independence India strived to transform itself
• India identified two options
Failure of market • 1. Depend entirely on market mechanism
mechanism • 2. or to consider market mechanism equipped with
proper economic planning
• Second model was more relevant , hence adopted

• Dependency on British economy

Striving for changed • resulted in increase of British economy and
relationship with devastated future of Indian economy
developed countries • So Indian economy revised its economy relation
with many developed countries to achieve
equality
• operations of market mechanism are absorb by higher section, laving
weaker section more weaker
• Indian , need is to formulate poverty mitigation programs in economic
Ensuring Social Justice planning
• many issues need solutions like, seasonal agricultural operations, inc.
burden of population on land, , lack of planned labor
•

• Careful and optimum resource planning is important for India

Mobilization and • if Government encourages private players for investment projects
allocation of resources , society may suffer as it doesn't follow the demand pattern
• private producers rarely invest for priority sectors.
In economics, the market
mechanism is a mechanism by
which the use of money exchanged by
buyers and sellers with an open and
understood system of value and time
trade-offs in a market tends to
optimize distribution of goods and
services in at least some ways.
 TYPES OF PLAN
planning by Centralized
direction & Rolling and and
planning by fixed plan decentralized
inducement planning

Democratic
financial and
and Capitalist and
physical
totalitarian social planning
planning
planning

perspective Indicative and Planning

and annual imperative under mixed
planning planning economy
 Targets of 12th five year plan ---2012-17

Industry:-
Water 1. Needs to grow at
Growth rate Agriculture 1. To enhance 11-12% p.a to create
•To achieve 8% and rural India’s water balance 2 million additional
job per year
growth rate development basin –wise
2. mapping all 2. To develop
•Target to increase aquifers in 5 years to greater domestic
4% growth in facilitate aquifers value
agriculture management plans 3. Technology
• concentration on 3. It aims to separate advancement
more of food and, electricity feeders for
animal agriculture
husbandry, 4. Tune FDI and
4. Improve trade policies to
fisheries
Surface & improve trade
• providing all balance
inputs for farmers Ground
Water
5. R&D
Quality
And innovation
Education & skill development
• Targets at universalisation of
secondary education by 2017
• Raise the gross enrolment
ratio from 20 to 25% in 2022
• Inc in FDP and teachers
training
• reducing social gender and
regional gap
• Research and innovation in
higher education
• cross linkages with industry
and institute
Health Energy
Provide clean drink
•Energy demand to
increase by 9%
water • following are focus
• better nutrition and areas:-
childcare facilities •1. Power sector target of
• for achieving this, 1,00,000 MW is finalized
convergence of •2. Coal production –
schemes across target to import 250
million ton for expansion
ministries is needed
of rail and port capacity
• expenditure on
•3. Petroleum and
health increased from Natural Gas- target to
1.3% of GDP to 2.0% develop stable and
•Increase seats in clearer production
medical college, sharing contacts also to
nursing colleges other expand pipelines for
licensed health transportation of
institutions natural gas and LNG
• improve NHRM
Services
 Managing urbanization
1. India urban population to increase by 600 million in 2030
targets to develop and propagate innovative ways of municipal
financing through PUBLIC- PRIVATE PARTNERSHIPS (PPPs)
It also focus on training and capacity building for urban
planning and urban services management for corporate and
municipal officials
 the process
by which
businesses or
Liberalization other
(or liberalisatio organizations
n) of the develop
economy means international
to free it from influence or
the transfer of a start
direct or
business, industry, or operating on
physical
service from public to an
controls
private ownership and international
imposed by the
control. scale.
government.
"the workers are
opposing the
privatization of the
national rail company"
 Objectives of economic reforms ion India
To develop a To enhance To redistribute the
liberalized and open accessibility resources
market economy resources appropriately

To improve efficiency To reduce poverty by To minimize the

of both public and minimizing budget deficit by
corporate sectors unemployment ratio improving revenue

To enhance
To remove the
productivity ,
needless government To make FDI free
efficiency and global
control from the from restrictions
competitiveness of
industrial economy
Indian companies

To provide support to
To eradicate the
loss making
restriction posed on
enterprises having
MRTP act
low rate of return
Monopolistic and Restrictive Trade
Practice under MRTP Act, 1969. The
Monopolistic and Restrictive Trade
Practices Act, 1969, was enacted. To
ensure that the operation of the economic
system does not result in the
concentration of economic power in
hands of few, To provide for the control of
monopolies,
 PARAMETERS OF ECONOMIC REFORMS :-
1. 20th century is the land mark period
2. In 1991 various economic reform was made which was altogher different
from past image of highly interventionist and inward looking economy

3. The parameters of economic reforms used in 1991 were as follows:-

a) Structural reform adjustments
b) Economic stabilization
 Structural reform adjustment:-
1. Process of creating market oriented reforms in various institutions and
policies with main objective of reducing inflation, facilitating higher
growth in per capita income and obtaining equilibrium in
balance of payments is known as structural adjustment

2. Initially a stabilization program was implemented to reestablish the

feasibility of budget and current growth.

3. these program are different from general stabilization program as they

contain certain micro economics institutional policy reforms

4. these structural changes were focused on following areas:-

a) Public sector policy
b) Industrial policy
c) Price policy
d) Trade policy
e) and tariff policy
 Economic
Stabilization
 Economic stabilization:-
Macroeconomic stabilisation measures influence whole economy
Following are the measures included in economic stabilisation
1. Exchange rate policy
2. Monetary policy
3. Fiscal policy

Following are the typical stabilization measures:-

1. Removal of price control
2. removal of constraints on factor employment and mobility
3. deregulation of domestic goods market
4. liberalization of trade rule
5. removal of saving and investment obstacles
6. creation and strengthening of institutions to back stabilization and
structural transformation
7. reregulation of domestic financial market
8. reformation of public sector including the tax system and the structure of
state owned enterprises as well as government spending
 What is 'Monetary Policy'
Monetary policy consists of the actions of a central bank, currency
board or other regulatory committee that determine the size and
rate of growth of the money supply, which in turn affects interest
rates.

Monetary policy is maintained through actions such as modifying

the interest rate, buying or selling government bonds, and
changing the amount of money banks are required to keep in the
vault (bank reserves).

Read more: Monetary

Policy https://www.investopedia.com/terms/m/monetarypolicy.asp#ixzz51OV
kmWLM
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The exchange rate
policy refers to the manner
in which a country manages
its currency in respect to
foreign currencies and the
foreign exchange market.
The exchange rate is
the rate at which the
domestic currency can be
converted into a foreign
currency.
Fiscal policy is the
means by which a
government adjusts
its spending levels
and tax rates to
monitor and
influence a nation's
economy
 Economic reforms since 1991:-
•1.FISCAL REFORMS :-
1. It includes limitation of public expenditure and improvement of public
revenue receipts without interrupting the economic and production
prosperity of the country
2. in order to accomplish this objectives ,several reforms such as
increasing taxation rates, increasing the prices of public sector
product, selling the share of public sector firms, regulating the public
expenditure , were undertaken
3. long term fiscal policy was declared by Raja .J Chelliah commiittee
report which are as follows:-
a) Simplified taxation systems were implemented
b) more scientific and practical approach was adopted in taxation
system upper limit of the tax was reduced from 50% to 30%
c) there was cut in custom duty from 250% to 10%
d) there was significant reduction in excise duty on various
commodities
e) there was reduction in subsidies
f) special initiatives were taken to reduce the public expenditure
 2. Financial/ monetary reforms:-
Following important reforms were implemented as per the recommendations
of this commiittee
1. Reduction in liquidity ratio –reduction in statutory liquid ratio (SLR) from
38.5% to 25% along with CRR from 12% to 5%
2. reduction in bank rate:- reduced up to 6%
3. free determination of interest rate:- regulation of RBI in the
determination of interest rates was removed and banks were free to fix the
rates of interest within the limit

3. International trade and investment reforms:-

• India trade policy had many reforms
• bureaucratic licensing processes were followed for the import of various
raw materials, capital goods which have domestic substitutes
• Import of consumer goods were completely banned
• founder member of Infosys had to visit Delhi several times to receive
permission to import one personal computers
• due to improves investment many significant industries like construction
aviation which removes foreign investment barriers
 4. Industrial Sector reforms :-
• the area of Indian economy which has seen a tremendous turn due to the
reforms adopted in 1991 in industrial policy of India
• The process of privatization has been completed in many government owned
firms

•5. Labor reforms:-

•The % of the organized labor or who have regular contractual employment in
India is merely 10% out of 500 million
• In Indian politics , power of labor union was further added by 12 labor
regulations. However the situation is changing now, the incidents of labor
strikes are decreasing day by day, the judgment of court are not favoring
labors without any reason and productivity is the main cause of labor
agreements

Privatization reforms :-
In India , public sector companies account for approximately half of the capital
stock and market share of industries like banking railways mining melting
smelting etc
some of these companies are kept alive just for serving public interest
although they may be incurring huge losses, for example, without starting
production, thousands of employees were kept an the pay roll of Fertilizer
factory in haldia, west Bengal.
 Constituents of economic reforms:-
 the strategies and instruments adopted since 1991 for growth and
development of economy are known as economic reforms
 three main element of economic reforms are

Liberalization

Privatization

Globalization
FOR THE GLOBALIZATION IN INDIA
FOLLOWING STEPS WERE TAKEN

Automatic
approval of
FDI

Automatic
approval of
Reduced tariff
rate foreign
technology
agreements

Allowance of
foreign equity
holdings