INTRODUCTION:ECONOMIC ENVIRONMENT OF BUSINESS
Economic Environment refers to all those economic factors, which have a bearing on the functioning of a business. Business depends on the economic environment for all the needed inputs. It also depends on the economic environment to sell the finished goods. Naturally, the dependence of business on the economic environment is total and is not surprising because, as it is rightly said, business is one unit of the total economy. Economic environment influences the business to a great extent. It refers to all those economic factors which affect the functioning of a business unit. Dependence of business on economic environment is total — i.e. for input and also to sell the finished goods. Trained economists supplying the Macro economic forecast and research are found in major companies in manufacturing, commerce and finance which prove the importance of economic environment in business. The following factors constitute economic environment of business: (a) Economic system
(b) Economic planning
(f) Financial & fiscal sectors
(g) Removal of regional imbalances
(h) Price & distribution controls
(i) Economic reforms
(j) Human resource and
(k) Per capita income and national income
The state became the encourager of savings and also an important investor and the owner of capital. Since the state was to be the primary agent of economic change, it followed that private sector activities had to be strictly regulated and controlled to conform to the objectives of state policy. The growth strategy also meant, in the early years of planning, a relative neglect of public investments in agriculture. This negligence of agriculture sector was supported by the general view that the increase labour in the developing countries could only be absorbed in the industry, and that during the early stages of industrialization, it was necessary for agriculture to contribute in the establishment of modern industry by offering inexpensive work force. A faster development of industry was the central objective of planning. The above is a thumbnail sketch of the growth strategy followed by the planners in the past four decades.
FACTORS AFFECTING BUSINESS ENVIRONMENTS
There are numerous factors that affect the ECONOMIC ENVIRONMENT extensively Such factors can be broadly categorised as follows:
1. FISCAL POLICY:
Fiscal policy may be defined as ‘a policy under which the government uses its expenditure and revenue programmes to produce desirable effect & avoid undesirable effect on national income, production and unemployment’.
2. MONETARY POLICY:
Monetary policy refers to the steps taken by the Reserve Bank of India to regulate the cost and supply of money and credit in order to achieve the socio-economic objectives of the economy.
3. POLITICAL FACTORS
The Economic Policies have depended upon the political policies of a political party. In short, important economic policies such as industrial policy, foreign capital policy, fiscal policy and import policy are often political decisions which established the great impact of political & legal environment on the business houses.
FISCAL POLICY: THE MEANING
The word FISCAL is derived from the old French Word ‘FISC, which means the money basket or the treasury. Thus fiscal means pertaining to treasury or government finance. FISCAL POLICY means the government policy of taxation, expenditure and public debt etc. Fiscal policy may be defined as ‘a policy under which the government uses its expenditure and revenue programmes to produce desirable effect & avoid undesirable effect on national income, production and unemployment’. It emphasizes the effect of government expenditure and revenue upon total economy and argues that they should be used deliberately and consciously as a balancing factor to...
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