ECONOMIC

ENVIRONMEN
T
 LEARNING OUTCOMES

• To understand the economic environment and system in India.

• Identify the types of polices in India (Fiscal and Monetary)

• To know about planning, planning objectives and features of planning.

 Economic Environment
• The term economic environment indicates all the

external economic circumstances that affect the

purchasing practices of customers and markets.

• Economic environment refers to those economic

factors which have impact on the working of

business. These factors include Gross national

product, corporate profit, inflation rate, etc. Hence,

it influences the production of the business.

Economic Sectors
Economic system in India
•Capitalist Economy: In a capitalist system, the means
of production are privately owned, and economic
activities are driven by the profit motive. Market forces
like supply and demand determine prices, and the
government has minimal intervention in the economy.
Examples include the United States and other Western
countries.

•Socialist Economy: In a socialist system, the means

of production are owned and controlled by the state or
the public. The government plays a significant role in
planning and regulating the economy, with the aim of
achieving social welfare and reducing income
inequality. Examples include countries like Cuba and
the former Soviet Union.
Mixed economy

•The characteristics of both the socialist and

capitalist economic systems can be found in mixed

systems.

•Mixed economic systems are also called dual

economic systems for this reason.

•Having overtaken the French economy, India sits at

the sixth position of the topmost economies of the

world with a Real GDP of $2.66 trillion. The Indian

economy also has become the world’s fastest

growing economy among the large economies.

 Economic System
Parameters Capitalist economy Socialist economy Mixed economy
Ownership of Private ownership Public ownership Both public and private ownerships
property

Price determination Prices are determined by Prices are determined by the Prices are determined by the central
the market forces of central planning authority. planning authority, and demand and
demand and supply. supply.

Motive of production Profit motive Social welfare Profit motive in the private sector
and welfare motive in the public
sector

Role of government No role Complete role Full role in the public sector and
limited role in the private sector

Competition Exists No competition Exists only in the private sector

Distribution of Very unequal Quite equal Considerable inequalities exist

income
 PLANNING IN INDIA
 Planning in India refers to the process of formulating
and implementing national policies and programs to
achieve specific economic and social objectives. It
began with the establishment of the Planning
Commission in 1950, inspired by the Soviet model of
centralized planning.

 Objectives of Planning in India

[Link] Growth: Enhance GDP and per capita income.
[Link] Reduction: Alleviate poverty through employment and
welfare schemes.
[Link]-Reliance: Reduce dependency on foreign goods and
technology.
[Link]: Minimize income and wealth disparities.
[Link]: Promote technological advancement and
 Evolution of Planning in India
Pre-Independence Era
•Economic Planning Committee (1938): Chaired by Jawaharlal Nehru,
under the Indian National Congress.
•Bombay Plan (1944): Suggested by industrialists like J.R.D. Tata and
G.D. Birla, focusing on state-led industrialization.
•People’s Plan (1945): Proposed by M.N. Roy, emphasizing socialism and
cooperative farming.
Post-Independence Era
[Link] Commission (1950):
1. Established by a resolution of the Government of India.
2. Mandate: Formulate five-year plans, assess resources, and
recommend policy measures.
[Link] Aayog (2015):
1. Replaced the Planning Commission to promote cooperative
federalism and dynamic planning.
2. Focuses on sustainable development and technology-driven
governance.
Time Line of Planning in India
 Five-Year Plans: Overview
[Link] Five-Year Plan (1951–1956):
1. Focus: Agriculture and irrigation.
2. Success: Increased food production and created significant
infrastructure.
[Link] Five-Year Plan (1956–1961):
1. Focus: Industrialization (heavy industries).
2. Achievement: Boosted the steel, energy, and transport sectors.
[Link] Five-Year Plan (1961–1966):
1. Focus: Self-reliance and economic growth.
2. Challenges: Indo-China war (1962) and droughts led to failure.
[Link] Holiday (1966–1969):
1. Short-term plans due to economic instability and wars.
[Link] Five-Year Plan (1969–1974):
1. Focus: Growth with stability and self-reliance.
2. Achievement: Green Revolution improved agricultural productivity.
•Fifth Five-Year Plan (1974–1979):
•Focus: Poverty reduction (Garibi Hatao).
•Challenge: Political instability led to the early termination of the
plan.
•Sixth Five-Year Plan (1980–1985):
•Focus: Economic liberalization and technological development.
•Success: Improved industrial growth and public services.
•Seventh Five-Year Plan (1985–1990):
•Focus: Employment generation and social justice.
•Eighth Five-Year Plan (1992–1997):
•Focus: Economic reforms (liberalization, privatization,
globalization).
•Impact: Opened the economy to foreign investments and trade.
•Ninth to Twelfth Plans (1997–2017):
•Focus: Sustainable development, inclusivity, and modernization.
 NITI Aayog: The New Era of Planning
•Core Functions:

• Policy Think Tank: Develop strategies

for states and central government.

• Cooperative Federalism: Promote

collaboration among states.

• Innovation: Encourage startups and R&D.

• Monitoring: Track implementation of

government schemes.
Difference Between NITI Aayog and Planning Commission
 Fiscal Policy
• Fiscal Policy refers to government policy in respect of
public expenditure, taxation and public debt. It is the
means by which the government adjusts its spending
levels and tax rates to monitor and influence a nation’s
economy.

Objectives of Fiscal Policy in India

 To achieve and maintain economic stability.
 To stabilize the price level.
 To maintain the growth rate of the economy.
 To raise standard of living of the citizens of the country.
 To reduce extreme inequality in income and wealth
 To provide the necessary incentives to the private sector for
its healthy growth.
Types of Fiscal Policies
 Monetary Policy
Monetary Policy
• The monetary policy is a policy formulated by the
central bank, i.e., RBI (Reserve Bank of India).The
policy involves measures taken to regulate the supply
of money, availability, and cost of credit in the
economy.

• It involves the use of monetary instruments by the

central bank to regulate the availability of credit in the
market to achieve the ultimate objective of economic
policy.
 Globalization of the Indian Economy:
• Globalization refers to the integration of national
economies with the global economy, encompassing free
trade, capital flows, technology transfer, and labor
mobility. India embraced globalization in 1991 as part of
economic reforms to address a severe balance of payments
crisis.

Key Features of Globalization in India

 Trade Liberalization

 Foreign Direct Investment (FDI)

 Technology Transfer

 Financial Sector Reforms

 Global Workforce Integration

 Effects of Globalization on India
Positive impact
•Increased investment by MNCs in India has led to the
profitable growth of local supplier companies in India
•Increased competition benefits the Indian economy and
companies by inducing higher quality goods
•Creation of new opportunities for domestic service sector
companies in more unique servicing fields like accounting,
data entry, engineering and so on
•Some own Indian companies have themselves prospered
into MNCs. For example, TATA, Infosys, Asian Paints

Negative impact
•Small manufacturers and industries such as domestic
industries of toys, tyres, vegetable oils, etc., cannot
compete with large MNC’s leading to their shut down
•Flexible employment culture, due to increasing
competition for jobs leading to unsecured careers
 D E S I G N YO U R O W N
C U R R I C U LU M : W I L L
YO U T H C H O O S E G R O W T H
O R S TAY T RA P P E D I N
C O M F O RT Z O N E ?
What type of economic system does India primarily follow?
•A) Capitalist
•B) Socialist
•C) Mixed
•D) Command

Which of the following is a key feature of a mixed economy like India's?

•A) Total government control of all industries
•B) Complete private ownership of all sectors
•C) Co-existence of public and private sectors
•D) No regulation of industries

Which institution was responsible for formulating India's Five-Year Plans until 2014?
•A) Reserve Bank of India
•B) Ministry of Finance
•C) Planning Commission
•D) NITI Aayog
Which year marked the major economic reforms that led to globalization in India?
•A) 1947
•B) 1971
•C) 1991
•D) 2000

[Link] of the following sectors benefited the most from globalization in India?
•A) Agriculture
•B) Manufacturing
•C) Information Technology and Services
•D) Mining
 Case Study: India's Response to the 2008 Global Financial Crisis

In 2008, the global financial crisis shook economies worldwide. India, with its mixed economic
system, faced challenges such as reduced exports, declining foreign investments, and slowing
industrial growth. However, the Indian government and the Reserve Bank of India (RBI)
implemented strategic fiscal and monetary policies to mitigate the impact of the crisis.
[Link] Policy Measures:
The government introduced three fiscal stimulus packages between December 2008 and
February 2009. These included:
1. Increased public spending on infrastructure projects.
2. Tax cuts to boost consumer spending.
3. Subsidies to key industries like textiles, automotive, and housing.
[Link] Policy Measures:
The RBI reduced the repo rate (the rate at which banks borrow from the RBI) from 9% to 4.75%
by April 2009. The cash reserve ratio (CRR) was also reduced, ensuring higher liquidity in the
banking system. These measures aimed to:
1. Lower borrowing costs for businesses and individuals.
2. Encourage lending and investment activities.
[Link] Impact:
India's economy, integrated with the global market, faced challenges such as reduced demand
for exports in sectors like IT, textiles, and gems. To address this, the government incentivized
export-oriented units and encouraged diversification into emerging markets like Africa and
Southeast Asia.
[Link] Commission's Role:
The Planning Commission suggested revising the 11th Five-Year Plan's targets to align with the
new economic realities. It emphasized rural development, employment generation, and
financial inclusion to create a more resilient domestic economy.
 Analyze the following questions:

[Link] how India's mixed economic system influenced the response to

the crisis.

[Link] the role of globalization in both worsening and resolving the

crisis for India.

[Link] alternative strategies India could have adopted to mitigate the

crisis’s impact more effectively.

 PLACEMENT-BASED QUESTIONS

 What type of economic system does India follow, and how does it balance the roles of public

and private sectors in driving economic growth?

 Explain the transition from the Planning Commission to NITI Aayog. How has this shift

impacted India's economic planning and policy formulation?

 How does fiscal policy contribute to economic stability in India? Provide an example of a recent

government fiscal initiative.

THANK YOU