UNIT -I
Business Environment: Importance at national and international level –problems and challenges
– factors both internal and external influencing business environment. Industrial policies since
independence and their significance – regulatory and promotional framework - Five-year plans
and their importance.

BUSINESS
Business may be understood as the organized efforts of enterprises to supply consumers with
goods and services for a profit. It is a continuous production and distribution of goods and
services with the aim of earning profits under uncertain market conditions.

BUSINESS ENVIRONMENT
Business environment refers to those aspects of the surrounding of business enterprise which
have influence on the functioning of business. An organization can survive and grow only when
it continuously and quickly adapts to changing environment.

The business environment is the combination of internal and external factors of a business. The
internal factors are within the organization to control the activities is called as internal factors,
whereas external factors are beyond the control of a business like economic environment,
political, social, cultural, technological and international environment of a business environment.

It consists of all those factors that have bearing on the business. A set of conditions – Social,
Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the
functioning of organization.

DEFINITION

Business environment can be defined as “the forces, factors and institutions with which the
businessman has to deal with to achieve its objectives”.

“Business environment is the climate or set of conditions economic, social, political or

institutional in which business operations are conducted”
-Arthur M.Weimer

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

“Business environment is the total of all things external to business firms and industries which
affect their organization and operations”
-Bayard O.Wheeler
In general words we can say business environment is the surroundings in which business exists.

NATURE AND CHARACTERISTICS OF BUSINESS ENVIRONMENT

1. Business environment is compound in nature.

2. It is constantly changing process.
3. It is different for different business units.
4. It has both long term and short term impact.
5. Unlimited influence of external environment factors.
6. It is very uncertain.
7. Inter-related components.
8. It includes both internal and external environment.

IMPORTANCE AT NATIONAL AND INTERNATIONAL LEVEL

1. Development of broad strategies and long-term policies of the firm.

2. Development of action plans to deal with technological advancements.
3. To foresee the impact of socio-economic changes at the national and international levels
on the firm’s stability.
4. Analysis of competitor’s strategies and formulation of effective countermeasures.
5. To keep oneself dynamic.
6. Complete knowledge of internal environment.
7. Economic policies of the Government.
8. To face business problems and challenges.
 

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

PROBLEMS AND CHALLENGES OF BUSINESS ENVIRONMENT

Macroeconomic Stability: Even moderate levels of inflation (between 20% and 40%) are a
constraint on enterprise performance and growth.

Taxation and regulation: High tax rates are the largest constraint on enterprise performance
and growth in the area of taxation and regulation. Tax evasion and arrears are major problems
and result in high burdens for enterprises that pay taxes. Excessive regulation encourages
corruption.

Crime and corruption: Crime is a significant problem for enterprises. Corruption is high,
harming domestic enterprises and deterring foreign investment. Corruption often affects small
enterprises more than medium sized enterprises.

Access to finance: High interest rates and poor access to long term loans are the most significant
problem related to access to finance. Access to finance is a greater constraint for small
enterprises than for medium or large enterprises.

The Legal system: existing commercial laws are poorly enforced and the legal infrastructure is
week.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

FACTOR
RS BOTHH INTERN
NAL AND
D EXTER
RNAL INF
FLUENCIN
NG BUSIN
NESS
ENVIRO
ONMENT

Business 
Enviro
onment 

Internall  External 
Environmeent  Ennvironment 

Primary  Supportive  Micro  Maacro 

Activities  Activities   Environmeent  Enviro nment 

A variety
y of factors can affect company's
c bu
usiness. Succh factors caan be nationnal level, reggional
level, an
nd internatio
onal level en
nvironmentaal forces. Thhese factors are also knnown as soccietal
factors or
o macro leevel business environmeent factors. In general, five forces are taken aas the
general environment
e tal factors namely
n econ
nomic, socioo-cultural, ppolitical-legaal, technologgical,
and interrnational. So
ome writers included na
atural envirronment as a distinct coomponent buut the
growing social awarreness on naatural enviro
onment show
ws that this component can be inclluded
into the socio-cultura
s al environmeent.

Set of these environm

mental facto
ors is mostly
y referred byy first four fa
factors PEST
T (Political-llegal,
Economiic, Socio-cu
ultural, and Technologiccal). The lo gic behind this is pervvasiveness oof the
internatio
onal environ
nment becau
use it affectss all these ffour sectors.. Fast growiing technoloogical
developm
ment, outsou
urcing busin
ness, emergeences of muultinational companies, and globall and
regional alliances hav
ve made the world a global village.

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Mr. P.MANOJ BBABU, 
ASSTT. PROFESSOR
R, DMS, BITS‐V
VIZAG 
 
 

I. Intern
nal environm
ment: Intern
nal environm
ment is consiidered to bee controllablle as the bussiness
can man
nage and con
ntrol the factors easily. These facttors can be modified oor altered byy the
business from time to
o time, but even
e then som
me problemss are faced bby the busineess.

i. Primary
P Activities: The one of th
he main usaage of prim
mary activitiies is to proovide
faacilities such
h as technolo
ogical and strategically
s according to the firm requirement some
of these are;
a. Inbou
und logisticss: These acttivities incluude receivingg, storing, m
material handdling,
wareh
housing, inveentory contro
ol, vehicle sccheduling annd returns too suppliers, eetc.
b. Opera
ations: It in
ncludes all those activiities which convert the raw materiial to
finished productts, such as, machininng, packagging, assem
mbly, equippment
maintenance, testiing, and prin
nting and faccility operatiions.
 

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Mr. P.MANOJ BBABU, 
ASSTT. PROFESSOR
R, DMS, BITS‐V
VIZAG 
 
 

c. Outbound logistics: Out bounding logistics include all the activities associated
with collecting, storing and distribution of goods to final consumers, such as,
warehousing, delivery vehicle operation, order processing and scheduling, etc.
d. Marketing and sales: It involves those activities which induce the buyers to
purchase the products, such as advertising, promotion, sales force, channel of
distribution and pricing.
e. Financial Resources: Finance is generally termed as the life blood of the
business. It is also an important internal environment affecting business
performances, strategies and decisions. It includes the factors related with
financial policies, financial position and capital and structure, etc.
f. Service: Activities associated with providing service to enhance or maintain the
value of the product such as installation, repair, repair, training, and parts supply
and product adjustment.
ii. Supportive Activities: Primary activities are more critical to a firm, but even then
support activities are also important to study the internal environment of the business.
a. Internal power relationship: It means the relationship between different levels
of management, management and shareholders, shareholders and board of
directors, employees to employees, management and Labour union, etc.
b. Procurement: Activities related with the procurement or purchasing of different
items, such as, raw material, machinery, services and so on.
c. Technology Development: Technology development means improvement in this
know-how, whether by the R&D department of the firm or by outsider.
d. Human Resource Management: Recruitment, training and development of
personnel in the organization comes under the scope of human resource
management. Every activity of the organization involves human resources and
therefore, it has great impact on the internal environment of the firm.
 

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

II. External Environment: External environment is largely consisted of uncontrollable

factors which influence a firm’s action and direction, organizational structure and internal
processes:

i. Macro/Remote environment: It is composed with set of factors which are generally

beyond the control of the firm. Such as, political, economic, social, technological, natural
and international factors. Macro environment is largely external to the business
enterprise. Macro environment factors are uncontrollable factors and beyond the direct
influence and control of the organization. Its factors are powerfully influence to its
functions. External environment consists of individuals, groups, agencies, organizations,
events, conditions and forces. These are frequently contacted by the organization for its
functions. It establishes good interaction and interdependent relations in form of conducts
business transitions. Proper designing and administration of macro environment enable
appropriate strategies and policies to cope with and make changes.
The macro/remote environment principally consists:

a. Economic environment
b. Political environment
c. Legal environment
d. Socio-cultural environment
e. Demographic environment
f. Natural environment
g. Technological Environment
h. Global or International environment
 

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

Economic environment: The economic environment is based on all the factors which involves
in the functioning of the business.
The business enterprise is affected by various economic factors which cannot be control by the
business. The one of the main usage of economic environment is to understand the more
economists to the find in the place of industrial establishment such as
 Economic system: The economic system of a country reflects the economic composition,
economic thinking and the economic liberalization. It also helps in preparation of the
business strategies.
o Socialist Economic System: Under socialistic economic system, the factors of
producing are to be organized, owned and managed by the government.
o Capitalist Economic System: A capitalist economic system is that system which
encourages private enterprises, free play of market force, strong competition and
directs the scare resource to most profitable once.
o Mixed Economy: It is a midway between socialist economy and capitalist
economy. Co-existence of both public and private sectors is the feature of mixed
economy. Our Indian economy system is also a mixed economy.
 Economic Policies: The term economic policy refers to Government policy towards
economy as a whole. These policies have great impact on the business. Economic policy
establishes relationship between Government and business.
 Economic Conditions: The impact of economic environmental changes can be seen on
business prospects over time in different ways. Increase in Green Revolution in certain
part of India led to growth in demand for a number of products like transistors, radio sets,
bicycles, tube wells and low horse power motors, as well as synthetic textiles.
 

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

 Financial Environment: The financial environment is also an important constituent of

the economic environment as it is affected by the efficiency and efficacy of the financial
environment of the country. The level of development of the financial system plays a
crucial role in the business. The financial system of our country can broadly be divided in
two parts: money market and capital market.
Political Environment: All business firms are directly affected to a greater or lesser degree by
the government and its programmes. Political forces will decide the nature of business,
programmes and projects to the undertaken for the development of the country. If any changes in
the political scenario of the country can lead to change in the economic policies.

Natural Environment: It includes all the geographical conditions which influence the type of
industries and business in a region. The people of a particular geographical region will have
similar tastes, preferences and requirements. The geographical situation such as climate, rainfall,
humidity etc. decides the type of leaving in a region and only those industries which could cater
the needs for the people could develop. These factors may directly influence the functioning of
the business and they affect the different industries.

Demographic Environment: Demographic is a study of human population with reference

according

 Change in the size and structure of population.

 Age, sex and size of a family of population.
 Language, caste, education, religion of population.
 Economic level of population.
These factors may directly influence the cause of a business and customer requirement for its
survival and growth.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

Social and Cultural Environment: Social and cultural attitude of a region influence the
business organizations of the regions in variety of ways. The business practices and the
management techniques of the organization should cope with the social and cultural attitude of
the people.

Social and cultural factors include attitude of people to work, attitude towards wealth, and
mobility of people. These are the important environmental factors those should be analyzed
while formulating business strategies.

Every society develops their own ‘Culture’ which means how the member of that society
behaves and interacts with each other in the society as well as outside society. The term culture
includes values, norms, customs, ethics, goals and other accepted behaviour pattern.

Technological Environment: Technology means “the systematic knowledge of the industrial

arts”. Techniques donate the method of performance. There are two increasingly use in modern
literature on industrial production the present age is the age of the technology.

Micro or Operating Environment:

Operating environment is also known as micro environment or competitive or task environment.

These factors can be influenced or controlled by the firm:
i. Competitive position: A business can improve its strategies by assessing its competitive
position for optimizing environmental opportunities. Competitors of a business enterprise
means the other firms which market the same or similar products and all those who
complete for the discretionary income of the consumers.
ii. Customer profile: The strategies of the firm should concentrate on the desire and needs
of customers. In developing a profile of present and prospective customers, mangers can
be able to plan the strategic operations of the firm.
 

 
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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

iii. Suppliers and Creditors: An important force in the micro environment of a company is
the suppliers and creditors, i.e., those who supply the raw material and capital to the
company. The manager should analyze the supplier changes in the environment like price
of the material, continuous supply of material, providing material on credit, etc.
iv. Labour market: for a firm’s success, it is pre-requisite to attract and hold capable
employees. There are three major factors namely, reputation, employment rate and
availability of required knowledge and skills, which affect firm’s access to needed
personnel.
v. Public: A public is any group that has an actual or potential interest in or impact on an
organization’s ability to achieve its interests. Every company has to encounter with
certain public like, media, citizens, local public, etc. some companies are seriously
affected by such public, such as action by local to business, for example, media may be
used to disseminate useful information.

INDUSTRIAL POLICIES SINCE INDEPENDENCE AND THEIR SIGNIFICANCE

Meaning of industrial policy:

Industrial policy means rules, regulations, principles, policies, and procedures lay down by
government for regulating, developing and controlling industrial undertakings in the country.
After independence, the government of India has formulated policies for industrial growth and
development. These policies have substantially regulated the business environment in the
country.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

Objectives of industrial policy:

Industrial policy statements have been announced from 1948 onwards. A no. of objectives has
been projected by the GOI while making industrial policy declarations. Some of the important
objectives can be identified as follows:

1. Achieving a socialistic pattern of society.

2. Preventing undue concentration of economic power.
3. Achieving industrial growth.
4. Achieving economic growth.
5. Developing heavy and capital goods industry.
6. Providing opportunities for employment.
7. Protecting and developing a healthy small scale sector.
8. Building up a large and growing cooperative sector.
9. Updating technology and modernization of industry.
10. Liberalization and globalization of economy.

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
 

 
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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

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.
 

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

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, crome 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
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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

14. Generation and distribution of electricity.

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. Carbonisation 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

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

5. To build up large and growing cooperative sector

6. To reduce disparities in income and wealth

Industrial Policy, 1991

1. The spread of industrialization to backward areas of the country will be actively

promoted through appropriate incentives, institutions and infrastructure investments.
2. Foreign investment and technology collaboration will be welcomed to obtain higher
technology, to increase exports and to expand the production base.
3. Abolish monopoly
4. Workers’ participation in management will be promoted

Issues of Industrial policy, 1991

 Government recognizes the need for

o Social and economic justice, to end poverty and unemployment and to build a
modern, democratic, socialist, prosperous and forward-looking India
 India to grow as part of the world economy and not in isolation
 Enhanced support to the small-scale sector so that it flourishes in an environment of
economic efficiency and continuous technological up gradation
 Emphasis on building our ability to pay for imports through our own foreign exchange
earnings

REGULATORY AND PROMOTIONAL FRAMEWORK

Industrial Policy, 1991 objectives

In pursuit of the above objectives, Government has decided to take a series of initiatives in
respect of the policies relating to the following areas:
A. Industrial Licensing.
B. Foreign Investment.
C. Foreign Technology Agreements.
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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

D. Public Sector Policy.

E. MRTP Act.

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:

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

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.

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.

FIVE-YEAR PLANS AND THEIR IMPORTANCE

 A Plan is a deliberate attempt to spell out how the resources of a country should be put to
use. It has some general and specific goals, which are to be achieved within a specific
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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

period of time. The general goals of a Plan are growth, modernization, full employment,
self-reliance and equity. But all Plans may not give equal importance to all of them. Each
Plan can have some specific goals like improvement of agriculture. For example our first
five-year plan was geared to improving the state of agriculture and the second to
improving Industry.
 

First plan (1951-1956)

1. The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the
Parliament of India on December 8, 1951.

2. The first plan sought to get the country's economy out of the cycle of poverty.

3. The plan addressed, mainly, the agrarian sector, including investments in dams and
irrigation. Agricultural sector was hit hardest by partition and needed urgent attention.

4. The total plan budget of 206.8 billion INR (23.6 billion USD in the 1950 exchange rate)
was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture
and community development (17.4 percent), transport and communications (24 percent),
industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent),
and other (2.5 percent).

5. The target growth rate was 2.1 percent annual gross domestic product (GDP) growth; the
achieved growth rate was 3.6 percent.

6. During the first five-year plan the net domestic product went up by 15 percent.

7. The monsoon was good and there were relatively high crop yields, boosting exchange
reserves and the per capita income, which increased by 8 percent.

8. National income increased more than the per capita income due to rapid population
growth.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

9. Many irrigation projects were initiated during this period, including the Bhakra Dam and
Hirakud Dam.

10. The World Health Organization, with the Indian government, addressed children's health
and reduced infant mortality, indirectly contributing to population growth.

11. At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were
started as major technical institutions.

12. University Grant Commission was set up to take care of funding and take measures to
strengthen the higher education in the country.

13. Contracts were signed to start five steel plants; however these plants did not come into
existence until the middle of the next five-year plan

Second plan (1956-1961)

1. The second five-year plan focused on industry, especially heavy industry.

2. Domestic production of industrial products was encouraged, particularly in the

development of the public sector.

3. Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were
established.

4. Coal production was increased.

5. More railway lines were added in the north east.

6. The Atomic Energy Commission was formed in 1957 with Homi J. Bhabha as the first
chairman.

7. The Tata Institute of Fundamental Research was established as a research institute.

8. In 1957 a talent search and scholarship program was begun to find talented young
students to train for work in nuclear power.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

9. The plan followed the Mahalanobis model, an economic development model developed
by the Indian statistician Prasanta Chandra Mahalanobis in 1953.

10. It used the existing art techniques of operation and research as well as the novel
applications of statistical models developed at the Indian Statistical Institute.

11. The plan assumed a closed economy in which the main trading activity would be centered
on importing capital goods.

Third plan (1961-1966)

1. The third plan stressed on agriculture and improving production of rice.

2. The Sino-Indian war led to inflation and the priority was shifted to price stabilization.

3. The construction of dams continued.

4. Many cement and fertilizer plants were also built.

5. Punjab began producing an abundance of wheat.

6. Many primary schools were started in rural areas.

7. Panchayat elections were started and the states were given more development
responsibilities.

8. State electricity boards and state secondary education boards were formed.

9. State road transportation corporations were formed and local road building became a state
responsibility

Fourth plan (1969-1974)

1. The Indira Gandhi government nationalized 14 major Indian banks and the Green
Revolution in India advanced agriculture.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

2. In addition, the situation in East Pakistan (now independent Bangladesh) was becoming
dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place. Funds
earmarked for the industrial development had to be used for the war effort.

3. India also performed the Smiling Buddha underground nuclear test in 1974.

Fifth plan (1974-1979)

1. Stress was laid on employment, poverty alleviation, and justice.

2. The plan also focused on self-reliance in agricultural production and defense.

3. Electricity Supply Act was enacted in 1975, which enabled the Central Government to
enter into power generation and transmission

4. In 1978 the newly elected Morarji Desai government rejected the plan.

Sixth plan (1980-1985)

1. When Rajiv Gandhi was elected as the prime minister, the young prime minister aimed
for rapid industrial development, especially in the area of information technology.

2. The Indian national highway system was introduced for the first time and many roads
were widened to accommodate the increasing traffic.

3. Tourism also expanded.

4. The sixth plan also marked the beginning of economic liberalization. Price controls were
eliminated and ration shops were closed. This led to an increase in food prices and an
increased cost of living.

5. Family planning also was expanded in order to prevent overpopulation. More prosperous
areas of India adopted family planning more rapidly than less prosperous areas, which
continued to have a high birth rate.

Seventh plan (1985-1989)

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

1. The Seventh Plan marked the comeback of the Congress Party to power.

2. The plan laid stress on improving the productivity level of industries by up gradation of
technology.

The thrust areas of the 7th Five year plan have been enlisted below:

• Social Justice

• Removal of oppression of the weak

• Using modern technology

• Agricultural development

• Anti-poverty programs

• Full supply of food, clothing, and shelter

• Increasing productivity of small and large scale farmers

• Making India an Independent Economy

4. Based on a 15-year period of striving towards steady growth, the 7th Plan was focused on
achieving the pre-requisites of self-sustaining growth by the year 2000.

5. The Plan expected a growth in labor force of 39 million people and employment was
expected to grow at the rate of 4 percent per year.

Period between 1989-91

1. 1989-91 was a period of political instability in India and hence no five year plan was
implemented. Between 1990 and 1992, there were only Annual Plans.

2. In 1991, India faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of
only about $1 billion (US). Thus, under pressure, the country took the risk of reforming
the socialist economy.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

3. P.V. Narasimha Rao (28 June 1921 – 23 December 2004), also called Father of Indian
Economic Reforms, was the twelfth Prime Minister of the Republic of India and head of
Congress Party, and led one of the most important administrations in India's modern
history overseeing a major economic transformation and several incidents affecting
national security.

4. At that time Dr. Manmohan Singh launched India's free market reforms that brought the
nearly bankrupt nation back from the edge. It was the beginning of privatization and
liberalization in India.

Eighth plan (1992-1997)

1. Modernization of industries was a major highlight of the Eighth Plan.

2. Under this plan, the gradual opening of the Indian economy was undertaken to correct the
burgeoning deficit and foreign debt.

3. Meanwhile India became a member of the World Trade Organization on 1 January

1995.This plan can be termed as Rao and Manmohan model of Economic development.

4. The major objectives included, containing population growth, poverty reduction,

employment generation, strengthening the infrastructure, Institutional building, Human
Resource development, Involvement of Panchayat raj, Nagarapalikas, N.G.OSand
Decentralization and peoples participation.

5. Energy was given priority with 26.6% of the outlay.

6. An average annual growth rate of 6.7% against the target 5.6% was achieved.

Ninth Plan (1997 - 2002)

1. Ninth Five Year Plan of India runs had the main aim of attaining objectives like speedy
industrialization, human development, full-scale employment, poverty reduction, and
self-reliance on domestic resources.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

2. Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of
Independence.

3. The main objectives of the Ninth Five Year Plan India are:

• to prioritize agricultural sector and emphasize on the rural development

• to generate adequate employment opportunities and promote poverty reduction

• to stabilize the prices in order to accelerate the growth rate of the economy

• to ensure food and nutritional security

• to provide for the basic infrastructural facilities like education for all, safe
drinking water, primary health care, transport, energy

• to check the growing population increase

• to encourage social issues like women empowerment, conservation of certain

benefits for the Special Groups of the society

• to create a liberal market for increase in private investments

4. During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower
than the target GDP growth of 6.5 per cent

Tenth plan (2002-2007)

1. The main objectives of the 10th Five-Year Plan were:

• Reduction of poverty ratio by 5 percentage points by 2007;

• Providing gainful and high-quality employment at least to the addition to the

labour force;

• All children in India in school by 2003; all children to complete 5 years of

schooling by 2007;

• Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;
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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

• Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to
2007);

• Reduction in the decadal rate of population growth between 2001 and 2011 to
16.2%;

• Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to
28 by 2012;

• Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007
and to 1 by 2012;

• Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012;

• All villages to have sustained access to potable drinking water within the Plan
period;

• Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012;

2. Economic Growth further accelerated during this period and crosses over 8% by 2006.

Eleventh plan (2007-2012)

The eleventh plan has the following objectives:

1. Income & Poverty

 Accelerate GDP growth from 8% to 10% and then maintain at 10% in the
12th Plan in order to double per capita income by 2016-17

 Increase agricultural GDP growth rate to 4% per year to ensure a broader

spread of benefits

 Create 70 million new work opportunities.

 Reduce educated unemployment to below 5%.

 Raise real wage rate of unskilled workers by 20 percent.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

 Reduce the headcount ratio of consumption poverty by 10 percentage

points.

2. Education

 Reduce dropout rates of children from elementary school from 52.2% in

2003-04 to 20% by 2011-12

 Develop minimum standards of educational attainment in elementary

school, and by regular testing monitor effectiveness of education to ensure
quality

 Increase literacy rate for persons of age 7 years or above to 85%

 Lower gender gap in literacy to 10 percentage points

 Increase the percentage of each cohort going to higher education from the
present 10% to 15% by the end of the plan

3. Health

 Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per

1000 live births

 Reduce Total Fertility Rate to 2.1

 Provide clean drinking water for all by 2009 and ensure that there are no
slip-backs

 Reduce malnutrition among children of age group 0-3 to half its present
level

 Reduce anaemia among women and girls by 50% by the end of the plan

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

4. Women and Children

 Ensure that at least 33 percent of the direct and indirect beneficiaries of all
government schemes are women and girl children

 Ensure that all children enjoy a safe childhood, without any compulsion to work

5. Infrastructure

 Ensure electricity connection to all villages and Below the Poverty Line
households by 2009 and round-the-clock power.

 Ensure all-weather road connection to all habitation with population 1000

and above (500 in hilly and tribal areas) by 2009, and ensure coverage of
all significant habitation by 2015

 Connect every village by telephone by November 2007 and provide

broadband connectivity to all villages by 2012

 Provide homestead sites to all by 2012 and step up the pace of house
construction for rural poor to cover all the poor by 2016-17

6. Environment

 Increase forest and tree cover by 5 percentage points.

 Attain World Health Organization standards of air quality in all major

cities by 2011-12.

 Treat all urban waste water by 2011-12 to clean river waters.

 Increase energy efficiency by 20 percentage points by 2016-17.

Twelfth Five year Plan 2012-2017

• India at the time of independence was left with crippling economy by British, which
needed attention and well planned strategies to boom again in the global market.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

• 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:

1. To deal with disparity of income and wealth

2. Govt. activism required for socially desirable activities with available resources and
foreign exchange
3. Govt. intervention required for development of infrastructure
4. Balanced regional development.
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

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

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.

1. A balanced regional development can be achieved through agro-dependent sectors.

2. Innovative technologies and open-market economies would enhance Human

Development Index of rural population. For all perishable products investments and
institutional development are more important than subsidies or price support systems.

3. Forest economies and tribal societies need greater protection and promotion

Transportation

1. In order to attain an overall growth urban governance, urban renewal, finance and urban
transportation reforms should be focused.

2. 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.

3. Energy efficient transport systems needs to be incorporated with emphasis on eco-

friendly and renewable resources.

Environment

1. 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.

2. 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.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

3. Technological advancement, equitable distribution, affordability along with public

awareness is major points of concern.

Decentralization

1. Previous five years plans have faced the reluctance of public participation. The 12th five
year plan however talks about decentralization, empowerment and information.

2. The policy making process should trickles down to the lowest level of society and more
people should have a say in the process.

3. Citizens should be well informed and more powers should be given to the public to
efficiently convey the issues by letting people know their powers and rights.

Technology

1. Globalization has led to rapid industrialization and competition in the market.

Technological and organizational innovation will help to enhance productivity and
efficiency.

2. Technological innovations leads to faster results and organizational innovation would

help in efficient utilization of resources, facilitated by providing incentives and tax
subsidies.

Healthcare

1. Healthcare conditions are improving in the country but its affordability and accessibility
is still an area to be focused on. Curative and preventive healthcare would help in
increasing general quality of life.

2. Focus on women and children are essential but importance to elderly class and handicaps
in order to achieve inclusive healthcare development is essential.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG 
 
 

3. 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

1. Energy being the wheel of growth has to be focused to ensure faster and inclusive
growth.

2. 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.

3. 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.

4. 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

1. Education being a concerned sector in five year plans has to be now emphasized more on
accessibility, affordability and quality.

2. The employability is to be increased for optimum exploitation of human resources.

Improvement in educational infrastructure, research and developments.

3. Vocational education will need to be given greater emphasis and made more attractive.
Skill Development needs a major focus at all levels.

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Mr. P.MANOJ BABU, 
ASST. PROFESSOR, DMS, BITS‐VIZAG