best digital marketing experts in indiaNumerous macro- level factors are there in the economic environment of India. These factors affect the business and the industry directly or indirectly.

Following are some of the factors:

  • Phase of country’s economic development.
  • The economic structure of the country which is in the form of mixed economy and includes the role of both public and the private sectors.
  • Various economic policies made by the government which include industrial, monetary and fiscal policies.
  • Economic planning which consists of annual budgets, five-year plans, etc.
  • Indices of the economy which include national income, distribution of income, rate of GNP, disposal income, savings rate, investment rate, amount of exports and imports, balance of payments, etc.

Business organizations in India have a realization of the significance of economic environment and its impact on their operations and functioning. While presenting the annual reports of the company, the chairpersons give due attention to the economic environment of the country.

Due to various government policies, all the companies in India and the economic environment is rapidly changing. During independence,

  1. The economy of India is generally agricultural and rural in character.
  2. The percentage of population working in agriculture was about 70%.
  3. The percentage of population living in the villages was about 85%.
  4. Irrational and low productivity technology was used to carry out production.
  5. Rates of mortality were high, communicable diseases were common and no good public health system was there.

Several steps were taken by the government in order to solve economic problems of the country. The steps taken by the government include control of definite industries by the state, central planning and the significance of private sector was minimized. India’s development plans had the following primary objectives:

  • To minimize unemployment
  • To minimize poverty.
  • To start rapid economic growth so that standard of living of people can be raised.
  • To make people self- reliant.
  • To set up a strong and rigid industrial base by giving importance to basic industries and heavy industries.
  • To minimize the inequalities in terms of wealth and income.
  • On the basis of equality and to reduce a man’s exploitation by a man, the main objective was to adopt a socialist pattern of development.

Public sector was given a lead role by the government in accordance with economic planning for

Crisis of 1991 June

The Government of India declared the major economic reforms because of the elements of the crisis situation. Those elements were:

  • In the year 1990-91, the fiscal deficit reached up to 6.6% of the GDP.
  • Internal debt was heavy as it rose to 50% of GDP and the payment of interests drained to 39% of the total revenue collected by the Central Government.
  • The growth rate of GNP was low which drained to 1.4% from the peak level of about 10.5% in the year 1988-89.
  • The overall production in the agricultural sector was low and the industrial and food grain production also have negative rates of growth i.e. -2.8%, -5.3% and -0.1% respectively.
  • Rising rate of inflation which was based on wholesale price index as well as consumer price index at the rate of about 13-14%.
  • Foreign trade got shrink. In addition to this, exports fell by 1.5% and imports fell by 19.4%.
  • Value of rupee was depreciated by 26.7%.
  • Deposits were withdrawn by the NRI’s at a very high rate.
  • All the international financial institutions were shaken in terms of confidence and within few years the credit worthiness of such financial institutions reduced to BB+ from AAA.
  • The country was on the edge of defaulting on the obligations of international financial institutions. In this situation, the country wanted some serious and instant policy action.

In May 1991, the Government of India leased 20 tons of gold from its stock. The lease of the gold was given to the State Bank of India so that it can resell the gold with the option of repurchasing after the time period of six months. Additionally, the Reserve Bank of India was also permitted to pledge 47 tons of gold to the Bank of England so that it can enable itself to raise a loan of amount $600 million.

Since 1991, economic reforms have been adopted by the country. India has now adopted policies like Liberalization, Privatization and Globalization. The country’s economic system is now becoming modernized.

  1. Liberalization

It refers to eradicating unnecessary trade boundaries to make the economy of the country more competitive by exercising freedom of production, development of the industries.

  1. Privatization

It refers to eradicating harsh control over the private sector to make them independent for taking their decisions.

  1. Globalization

Globalization help the economies of the world to interact among themselves freely whether in the field of finance, production, trade or technology.

Contribution towards globalization was made with the help of new economic policy in the following ways:

  • Increasing the participation of foreign equity
  • Trade policy of a longer period
  • Devaluation of rupee
  • Convertibility of rupee

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