ASSESSING OVERALL BUSINESS ENVIRONMENT IN INDIAN ECONOMY

Since the early 1990s, India's business environment has gotten a lot better
because of economic reforms. These changes have made it easier for both local and
foreign investors to do business. The goal is to move from a centrally controlled economy
to one that's more market-oriented, aiming for better efficiency and growth. This involves
allowing more competition by easing internal rules, and welcoming foreign investment
and trade.

However, the economic troubles in the US also affected India negatively. Despite
this, India has some strengths that can help lessen the impact of the global economic
crisis. There are still lots of business opportunities here for both local and foreign
entrepreneurs.

There's a collection of 21 research papers in this work that look at different aspects of
business in India today, including studying the government's economic policies.

Back in 1947, after gaining independence, India started focusing on

industrialization to boost its economy. They mainly worked on building up manufacturing
industries. This development was planned out through five-year plans. Industries like iron
and steel, oil refineries, cement, and fertilizer were put under government control.
Leaders also pushed for the growth of small-scale industries because they believed
these smaller businesses would be crucial for India's economic growth and could create
lots of jobs. Supporting small businesses would also spread out industry growth, make
wealth more evenly distributed, and encourage more investment and entrepreneurship.

The government has started various policies to help small-scale industries grow.
These include reserving certain items to be made only by small-scale businesses and
providing support in areas like credit, technology, and entrepreneurship development. In
1999, the government even set up the Ministry of Small Scale Industries and Agro and
Rural Industries to make decisions about how to help these small businesses grow and
succeed.

At first, small-scale businesses were seen as traditional, labor-intensive units with

old machines and not very efficient production methods. But in recent times, these
businesses have improved a lot. They now use modern machines, better management
techniques, and are much more productive than before.
1.1 Introduction
In layman’s language business means buying and selling of goods. It is referred to as an
organized effort of enterprise to supply consumer with goods and services for a profit.
This simple understanding is limited for assessing the role of environment in today’s
global business activity. To gain better understanding, modern business may be defined
as complex field of industry and commerce which involves activities related to both
production and distribution. These activities on one hand satisfy society’s needs and
desires and on the other hand bring profits to business firms.
1.1.1 Nature of modern business
The significant characteristics of modern business are: large size, oligopolistic nature,
diversification, global presence, technology orientation, and government regulation.
a) Large size of business: Modern business is large in size. Private sector companies
of India are not as large as some of the companies of developed nations in terms of
sales and assets but are quite large by the standards of developing countries and
compare favourably even with a large number of middle size companies of western
world. The notable private sector large business organizations include Reliance, Tata,
Larsen & Toubro, Bharati Airtel, Adani, etc.
b) Oligopolistic nature: Oligopoly is characterized by small number of firms seeking a
homogenous or a differentiated product.
c) Diversification: In order to grow and expand, today business houses adopt the policy
of diversification. The Tata is a big business organization of India. It has a diversified
portfolio consisting of different automobiles, iron and steel, insurance,
telecommunication etc. Reliance group also has a diversified portfolio of oil, telecom,
textiles etc.
d) Global presence: In the wake of liberalization and reduction of trade restrictions,
business organization also expands by doing the business overseas. The Indian
companies like Reliance, Ranbaxy, Sundaram, Bajaj Auto, Tata etc also export their
products to different nations of the world.
e) Technology orientation: To satisfy ever changing needs of large number of
consumers, modern business organizations adopt new technology to introduce new
products in the market. They spend considerable amount of their budget to research
oriented activities directed to adopt new technologies.
f) Government regulations: with liberalization there is also reduction in government
controls. But government control over business organizations is also necessary to
correct market failures represented in the form of monopoly and pollution. Moreover
government attempts to create stable market conditions by monetary and fiscal
regulations.
1.1.2 Business environment
It refers to all external factors which have direct or indirect influence on functioning of
business. It is divided in to two broad categories- external and internal environments.
External environment is futher categorized as macro and micro environment.

At present Indian economy is characterized as developing economy. Indian economy is

an agricultural economy. More than 50% population is dependent on agriculture.
1.2 Characteristic Features of Indian Economy
India has a mixed economy wherein both private and public enterprises prevail.
Indian constitution allows private ownership of means of production. Thus private sector
also exists with public sector. At the time of independence, due to huge resource
requirement and long gestation period to realize profit, several sectors of the economy
were developed under public sector mode by government. Although market mechanism
in India is still not completely free from government control, it holds a predominant
position in Indian economy. After liberalization in 1991, there is much higher growth in
private sector compared to public sector.
1. Low per capita income: In 2009 India’s per capita income was Rs 37490 per
annum. India’s per capita income is very low compared to developed nations of the
world.
2. Unequal distribution of income and poverty: The inequality in income is gauged
from unequal expenditure on house hold items. Wide spread poverty is also prevalent
in India. Thus such a situation of poverty even after six decades of independence is
detrimental to the appropriate growth of business. People below poverty line cannot
create large demands for industrial goods.
3. Agricultural based economy:
India is referred to as agricultural country. At the time of independence around
70% of people were dependent on agriculture for their livelihood. This figure has not
changed a lot. Only there is marginal decline in this number. In 2006-07, agriculture
and allied activities contributed 18.5 percent of gross domestic product. This figure is
still higher compared to many third world countries like Argentina, Brazil, and Mexico
etc. wherein contribution of agriculture is around 10% of GDP. Due to less productivity
of agriculture sector compared to industrial sector, the people who are dependent
upon it have less purchasing power.
4. Higher population: India is second largest populated country after China. This puts
tremendous pressure on the existing natural resources.
5. Unemployment: Coupled with higher population growth rate, large scale
unemployment and underemployment also characterizes the Indian economy.
6. Scarcity of capital: In India, saving and investment rates have risen at a low rate
which can realize only a moderate growth rate. Due to this, there is scarcity of capital
which does not allow business to grow at fast rate. It acts as hindrance to implement
latest technologies.
7. Technological backwardness: Success of any business in today’s globalized
competitive world depends on adoption of latest technology. Modern latest technology
is certainly scale neutral, but it is not resource neutral. This acts as a hindering factor
for large number of small and marginal farmers to adopt latest agricultural technology.
8. Limited Entrepreneur potential: An entrepreneur takes risks and ventures in to new
business. This results in growth of economy. Unfortunately in India there are limited
persons possessing entrepreneurial skills.
1.3 Assessing Overall Business Environment

India is a key player in the world economy. The Indian economy is much
diversified. The diversity ranges from agriculture to latest modern technology. The
contribution of agricultural activity to the GDP is less while it employs higher workforce.
Still today it provides around 65 to 70 percent of direct and indirect workforce. This
situation places burden on Indian economy. At the same time India has the comparative
advantage with regards to higher proportion of people with technical skills and English
language proficiency skill. This factor is conducive for entrepreneurs.
Indian economy has changed from controlled public sector to more liberalized
system allowing both national and international players. Market has also changed from
seller’s market with limited competition to buyer’s market with increased competition.
These changes in competitive scenario also give rise to numerous entrepreneur
opportunities.
Indian Economy has changed from quantitative restrictions and tariffs to quota
free and open economy and from a restricted financial market to a liberalized financial
market. All these major changes characterize the dynamic nature of Indian economy.
The Indian economy has achieved a growth rate of about seven percent in recent years.
In recent years, service sector contribution has increased as compared to other sectors.
Indian economy is considered as a developing economy based on its
characteristic features. The salient features of Indian economy can be specified as
predominance of agriculture, rapid, population growth, low per capita income,
unemployment, capital scare economy. Some of the problems of Indian economy are:
inadequate employment opportunities, economic inequality, poverty, poor infrastructure,
fiscal deficit and higher proportion of non-performing assets.
 OVERVIEW OF INDIAN SOCIAL, POLITICAL AND ECONOMIC SYSTEMS AND
THEIR IMPLICATION FOR DECISION MAKING BY INDIVIDUAL ENTREPRENEURS
2.1Introduction

Indian leaders, notably the first Prime Minister Dr. Jawaharlal Nehru, who
implemented the concept of five year plans, believed that high economic growth and
more income amongst the poor population are the prime goals before the newly
independent nation. To achieve these goals, government was assigned important role
and since 1951, number of five year plans have played major role in economic
development of the country. Although there was considerable growth in 1950s, but it was
a less than many other Asian countries. From 1951-79, the Indian economy grew at an
average rate of 3.1 percent a year at constant prices. In the same period, growth in
industrial sector was about 4.5 percent a year and for agriculture sector, it was 3.0
percent. Many political leaders associated with Independence movement were favouring
socialistic pattern of development. They were in favor of government intervention in the
economy. They propagated ownership by state for key industries.
Indian economic systems: India has a mixed economic system. Indian economy
comprises of traditional village farming, modern agriculture, handicrafts, modern
industries and new emerging social sector. Since 1991, government has adopted
liberalization policy. Restrictions on foreign trade and investment have reduced. The
economic growth rate is around and above 6% in the liberalized era since 1991. This has
resulted in reduction in poverty by about 10 percent. India possesses large number of
educated youth, which has helped in economic progress; and the country and India
emerged as an important destination for business process outsourcing services.
In layman’s terminology, environment means the natural forces like air, water etc.
For a business organization environment means all the internal and external forces
affecting the organization. Management of business organizations should visualize and
foresee the impact of environmental forces. In a strict economic sense, environment
refers to all external forces which have profound influence on the functioning of business.
Environmental factors are beyond the control of individual business organization. All
business organizations function within the broad framework of the external environment
which either provides opportunity or act as a threat to the business organization.
The external environment is a mix of complex dynamic forces uncontrollable by
the business organization but can also be influenced or affected by the organization. The
external environmental forces decide the choice of a strategy. The marketing decisions
are also influenced by external environment forces. Successful business organizations
continuously monitor external environment and likewise adopt appropriate strategy so as
to meet the customer’s need in a most effective way. Looking from the system’s
viewpoint, all business organizations operate in an open system. It takes resources from
the external environment, carries out conversion process and gives output in the form of
goods or services to external environment.

2.2 Type of Environment

A) Macro environmental factors

1. Economic Environment
A close relationship exists between business and its economic factors which
include business cycles, inflation, unemployment interest rates, income level of saving
and investments, fiscal, monetary and balance of payment situations and overall growth
activity. The economic factors affect consumer purchasing power and spending pattern.
Economic environmental factors decide the growth prospects of business houses. During
recession, the demand of goods and services decreases leading to slowdown of
business. The economic policies framed by the government may either act as opportunity
or threat for a business.

2. Technological environment
Technology is the most dynamic force. Technology implies systematic application
of scientific or organized knowledge to practical tasks. Technological development
occurs at a very fast pace. Business organizations have to keep pace with the fast
changing technology by adopting latest technology in their production process.
Technology has a profound impact on life styles, consumption pattern and economy. The
rate of change in technology also acts as opportunity or threat for existing business
organizations. Technological development leads to establishment of new industries at the
same time.

3. Political Legal Environment

This refers to influence exerted by all the three constitutional wings namely
legislature, executive and judiciary on business. Government frames legal rules and
regulations for smooth functioning of business organizations Subsidies, tariffs, import
quotas and deregulation of industries are some of the regulating forces imposed by
government for business organizations. The political environment includes role played by
government and other non-government organizations (NGOs) influencing the business
activities.
The legislature, executive and judiciary either singly or in combination shapes,
direct, develops or controls the activities of business organizations. In recent times there
is growth of many NGOs which exert influence on business organizations and compel
them to adopt right practices in the larger interest of all sections of society. The legal
environment becomes more complicated as business organizations expand globally and
face government structures quite different from those within their host country. A stable
and dynamic political environment is very essential for business growth.

4. Demographic Environment
Demography is the study of human population with respect to size, density,
location, age, sex, race, occupation and other statistics. Demographic trends such as
worldwide explosive population growth, a changing age – education and aesthetic mix of
population, changes in the household pattern, geographical shifts in population etc. act
as opportunity or threat to business organizations.

5. Socio Cultural Environment

 These are most difficult uncontrollable factors to predict. It is necessary for
business organizations to understand and appreciate the socio cultural values of society
in which they conduct their operations. The cultural environment is composed of society’s
basic values, perceptions, preferences and behaviors, cultural values & beliefs is a mix of
concepts like quality, achievement, youthfulness, efficiency, practicality, freedom, self-
actualization, individualism, patriotism, religious beliefs, morality, courage, ownership of
responsibility, materialism etc. Each country has a specific and unique socio-cultural
environment. Business organizations have to comply with this unique socio cultural
environment.

6. Natural Environment
Business as an economic system that is established by man but it is impacted
upon by natural forces. Business activities also influence the nature in positive and
negative ways. The ecosystem refers to natural system and its resources that are
required as inputs by business organizations or that are affected by business activities. In
recent years the concepts & preserving the natural environment or green marketing have
emerged. The natural resources are of renewable and non-renewable type. It is
necessary for business organizations to make efficient use of natural resources for the
benefit of mankind.