Economic Environment of Business

Session I

Assessment Plan


Internal Assessment: 60 marks

Class Quiz on sectors : 20 marks


Presentations on 22nd August Presentations in March

Group Project: 20 marks



Surprise Class Test: 10 marks Attendance: 10 marks



Final Examination: 30 marks

ECONOMICS


Economics is a social science that deals with human behaviour pertaining to production, exchange and consumption of goods and services. Adam Smith, Karl Marx Economics is the analysis of universal types of problems of the allocation of resources, which are given and versatile, among ends, which are many and varied in significance. Lionel Robbins

Nature of Economics


All economic decisions are trade-offs there is an opportunity cost for everything Human needs have multiplied over time and they are non-satiable human wants are unlimited and they are gradable Resources are scarce and they have multiple uses

Science of Choice
   

Production decisions Exchange decisions Consumption decisions Growth decisions

Microeconomics and Macroeconomics

Behaviour of the aggregate i.e. the economy as a whole National Income, employment, money supply, inflation, interest rate, monetary policy, fiscal policy, international trade, exchange rate etc

Behaviour of individuals like a household, worker, firm, industry Demand supply and prices of commodities, production function, cost function etc

Target variables

High

and growing income Price stability Social Justice Globalization with sovereignty intact
money

Intermediate variables Indicator variables

supply, interest rate Savings & investments Foreign investments Foreign exchange rate sensex The monsoon Foreign exchange reserve Fiscal deficit
BSE Fiscal

Instrument variables

and monetary policies Industrial policy, trade policy Banking regulation policy

Macroeconomic goals and variables

INDIA PROFILE: 2003 - 2006 - 2009

2009 data is estimated data
GDP (current US $ BILLIONS) GDP growth (annual %) GNI per capita (current US$) Gross capital formation (% of GDP) Inflation, GDP deflator (annual %) Agriculture, value added (% of GDP) Industry, value added (% of GDP) Services, etc., value added (% of GDP)

600.64 9 540 24 3 22 27 51

911.81 9.2 820 34 5.9 18 28 55

1237 7.4 1,180 32.4 10.9 17 28 55

INDIA PROFILE: 2003 - 2006 - 2009

Life expectancy at birth, total (years) Population, total (MILLION) Population growth (annual %) Literacy rate, adult female (% of females ages 15 and above) year 2000 Literacy rate, adult male (% of males ages 15 and above) year 2000 School enrollment, primary (% net) year 2000 Poverty headcount ratio at national poverty line (% of population) year 2000

63 1,064.4 1.5 45 68 83 29

64 1,109.8 1.4 . .. 85 28.6

64/69.89
1,166

1.4 48 73 90 27

Source: World Development Indicators database, April 2008, India Country Overview April 2010, World Bank

Business Environment

Factors Influencing Business Decisions

Main Classification

Internal Environment

Business Decisions

External Environment

Business Environment
1.

Internal Environment Micro Environment / Operating Environment Macro Environment/ Remote Environment

2.

3.

Internal Environment
      

Value System Mission and Objectives Management Structure and Nature Internal Power Relationship Human Resources Company Image and Brand Equity Other factors: assets, facilities, R&D, Marketing and financial factors

Micro Environment
Micro Environment Suppliers Customers

Society Financial Institutions

Competitors Marketing Intermediaries

Political / Government Factors

Technological Factors

Legal Factors

SocioCultural Factors

External Environment: Macro

Demographic Factors

Economic Factors

Global Factors

Environmental Analysis
 

Internal Environment: Controllable factors External Environment: Beyond your control

SWOT Analysis


Strengths and Weaknesses come from the internal environment The external environment presents numerous Opportunities and Threats

ECONOMIC ENVIRONMENT OF BUSINESS

Structure and nature of the economy

Economic policies

Economic Environment

Global linkages

Economic conditions

Structure and nature of the economy



Level of development of the economy developing and developed economies

Sectoral composition of output Agriculture, industry and services sectors contribution

Inter-sectoral linkages

Economic conditions
     

Level of Income and its distribution GDP trends Price level Foreign Trade and Balance of Payments Foreign Exchange Reserves Global Economic Trends

Economic policies
     

Industrial Policy Trade Policy Monetary Policy Fiscal Policy Foreign Exchange Policy Foreign Investment Policy

Global linkages


Magnitude and nature of cross-border Trade flows International Financial flows Membership of - WTO - IMF - World Bank - Trade Blocs

 

India
Population- 2002 (million) Land (000 sq. km.) GNP (US $ Billion) 2002- measured PPP GNP per capita measured (US $) GNP per capita PPP (US $) GDP growth rate % (1990 2001) GDP per capita growth rate % (1990 2001) 1048 3287 502 2691 480 2570 5.9 4.0

USA
288 9629

Japan
127 378 4266 3315 33550 26070 1.3 1.0

China
1281 9598

World
6201 133875 31484 46952 5080 7570 2.7 1.2

10110 10110 35060 35060 3.4 2.1

1210 5625 940 4390 10 8.8

Sources : Human Development Report,UNDP, 2003, International Statistics, IMF, March 2004

India
Unemployment rate % (2002) Share in GDP % Poorest 20% Richest 20% Inflation average % (1990 - 2001) Poverty - % of population (2002) Adult illiteracy % (2001) Males Females Life Expectancy years (2001) Males Females 6 (?)

USA
5.8

Japan
5.4

China
3.1

World
-----

8.1 46.1 8.7 34.7

5.2 46.4 2.7 14.1

10.6 35.7 0.6 3.7

5.9 46.6 7.6 16.1 -------

31 54 64 63

00 00 80 74

00 00 85 78

08 21 73 69

-------

Economic Growth and Development

Economic Growth


Economic Growth is the process of sustained increase in real national and per capita income over a long period of time. Increase in real national income can be sustained only when this increase is the outcome of some permanent and durable increase in productive capacity of the economy through increasing investment in the various sectors agriculture, industry, infrastructure etc.

Economic Development


Economic Development is a broader concept than Economic Growth. Economic Growth merely refers to a rise in output, Economic Development implies changes in technological and institutional organisation of production as well as distributive pattern of income C. P. Kindleberger

Economic Development


The process of development is far more extensive. Apart from the rise in output, it involves changes in the composition of output as well as a shift in the allocation of productive resources to ensure social justice.

3 Questions Dudley Seers



What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality?

1999 GNI per capita (current US$) 440

2000 450

2001 460

2002 470

2003 540

GDP growth (annual %)

Exports of goods and services (% of GDP) Imports of goods and services (% of GDP) Foreign direct investment, net inflows (BoP, current US$ 000,000) Inflation, GDP deflator (annual %) Life expectancy at birth, total (years) Poverty headcount (% of population) School enrollment, primary (% net)

12 14 2,168.6 4 . 84

14 15 2,496.04 4 . 29 84

13 14 3,767.91 4 . .. 83

14 16 3,700.3 3 63 .

15 16 4,269 3 63

The challenges of development

      

Better education Higher standards of health and nutrition Less poverty A clearer environment More equality of opportunity Greater individual freedom A richer cultural life
- World Development Report, 1991

Human Development Index



Longevity measured by life expectancy at birth Educational attainment measured by adult literacy rate and gross enrolment ratio- GER Standard of living measured by real per capita GDP adjusted for PPP

Classification of countries
HDI Values High Human Development Medium Human Development Low Human Development 0.800 & above 0.500 0.799 Below 0.500

India Human Development Index

Year 1991 2001 2002 2007 Indias HDI 0.439 0.590 0.595 0.619

2002 : Indias rank was 127 out of 177 countries 2007: Indias rank was 128 out of 177 countries 2008: Indias Rank was 132 out of 182 countries 2009: Indias Rank was 134 out of 182 countries

India HDI 2010

 

The HDI was refined in 2010. A new series was published with retrospective effect According to the revised data, between 1980 and 2010 India's HDI rose by 1.6% annually from 0.320 to 0.519 today, which gives the country a rank of 119 out of 169 countries with comparable data.

     

2005 - 0.482 2006 - 0.491 2007 - 0.500 2008 - 0.506 2009 - 0.512 2010 - 0.519

Salient Features of Indian Economy

1.
     

Low standard of living

Low incomes / poverty Limited or low level of education Inadequate housing Poor health High income mortality Low life expectancy

Per Capita Incomes of Various Groups of Countries

Per Capita GNP (2000) $ 7350 520 2950 25510 2390

World Low Income Countries Middle Income Countries High Income Countries India

Vicious Circle of Poverty

POVERTY

ILLITERACY

LOW PRODUCTIVITY

UNEMPLOYMENT

2. Low Productivity
 

Low level of technology Low quality of Human Resources

3. High Rate of Population Growth

 

Low mortality rates High birth rates

4. High Levels of Unemployment

 

Underemployment Disguised unemployment

5. Substantial dependence on Agricultural sector

 

Contribution to GDP 17% Employment 52% and Vulnerability in International

6. Dependence
  

Relations High inequalities Political instability Dependence on developed nations for - Foreign aid - Foreign capital - Technology

Readings, References


  

http://hdrstats.undp.org/countries/country_fac t_sheets/cty_fs_IND.html https://www.cia.gov/library/publications/theworld-factbook/geos/in.html#Econ http://www.cmie.com/ http://www.worldbank.org/ http://hdr.undp.org/en/reports/global/hdr20072008/ Chaper 1, Business Environment