Economic Environment of Business

Session 10
Constituents of Business
Environment
Economic Structure

Veena Keshav Pailwar

Professor
IMT Nagpur
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 Trend in Macroeconomic Variables
Economic Variable What the Increasing Trend Indicate for Business
Managers
National Income Market potential
Inflation Moderate: Conducive environment for business
Very high: Uncertainty; Growth retarding
Employment and Emerging resource and capacity constrain
Capacity Utilization Pressure on wages & interest rate: Higher cost Overall
inflationary scenario
Saving Easy availability of funds for capacity expansion
Investment Growing capital stock
Expanding productive capacity
Fiscal Deficit Expansionary fiscal policy
Expansion in money supply: Growing demand
Inflationary pressure
Increasing debt burden for the government
Increasing interest rate
Money Supply Increasing liquidity
Easy availability of credit
Inflationary
Veenapressure
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 Trend in Macroeconomic Variables

Economic Variable What does the Increasing Trend Indicate for

Business Managers
Balance of Payment
Current Account Deficit Economy consuming more than it is earning
Increasing debt burden
Depletion of foreign exchange reserves
Capital Account
FDI Inflow Increasing availability of funds for investment
Growing competition for the domestic producers
Portfolio Inflow Hot-money, Volatility,
Debt Inflow Debt burden, debt trap
Exchange Rate Inherent weaknesses in the economy
Depreciation
Socio- Economic Variable Living conditions

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 Government Economic Policies and
Economic Environment
Affects
Level of Aggregate Demand
Availability of Credit
Fiscal Policy
Cost of Funds
Monetary Policy
Production Capacity
Industrial Policy
Trade Policy Infrastructure
Exchange Rate Policy Market Structure
Other Government Policies Competition
etc.

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International Business
Environment

Economic trends and conditions

outside the country

Affects
• Exports: Aggregate demand
• Cost of Production
• Inflation
• Trade and Capital Flows
• Exchange Rate
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 Economic
Structure

Determines the Physical Framework

for the Economy and Business Units

Determinants Impact
Population Size Level of Demand
Income Per Capita Structure of Demand/ Product Composition
Factor Endowment Production Possibility Frontier
Demography Consumption Pattern, Demand Structure
Technology Production Method- Factor Intensity

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 Economic Structure

Constituents Measurements
•Production Structure •Sectoral composition of output
•Demand Structure •Expenditure composition
•Employment Structure •Employment by eco activities
•Fiscal Structure •Composition of government
expenditure and revenue
•Financial Structure •Bank vs Market based
•Trade Structure •Sectoral export and import shares
•Population Age, Gender
Distribution, and Density
•Demographic Structure
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Economic Structure and Stages of Development
Production Structure Stage of Development

Agrarian Economy Underdeveloped Stage of the

Economy

Industrial Economy Second Stage of Development

of the Economy

Service Oriented Advanced Stage of

Economy Development of the Economy
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