Economic Environment of Business_1

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

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

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

Target variables
•High and growing income
•Price stability
•Social Justice
•Globalization with sovereignty intact
Intermediate variables
•money supply, interest rate
•Savings & investments
•Foreign investments
•Foreign exchange rate
Indicator variables
•BSE sensex
•The monsoon
•Foreign exchange reserve
•Fiscal deficit
Instrument variables
•Fiscal and monetary policies
•Industrial policy, trade policy
•Banking regulation policy

INDIA PROFILE - 2003
GDP (current US$): ___________________________ 600,637,440,000
GDP growth (annual %): ___________________________________ 9
GNI per capita, Atlas method (current US$): ___________________540
Gross capital formation (% of GDP): __________________________ 24
Inflation, GDP deflator (annual %): ___________________________ 3
Agriculture, value added (% of GDP): _________________________ 22
Industry, value added (% of GDP): ___________________________ 27
Services, etc., value added (% of GDP): ________________________ 51

INDIA PROFILE

Life expectancy at birth, total (years): ____________________________63
Population, total: ___________________________________1,064,398,592
Population growth (annual %): ___________________________________1
Literacy rate, adult female (% of females ages 15 and above) year 2000: _____45
Literacy rate, adult male (% of males ages 15 and above) year 2000: ________68
School enrollment, primary (% net) year 2000: _______________________83
Poverty headcount ratio at national poverty line (% of populn) yr 2000: ______29

ECONOMIC ENVIRONMENT OF BUSINESS

Structure and nature of the economy
Economic policies
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........... USA............. Japan........... China............. World
Population- 2002 (million) 1048_____ 288______ 127_____ 1281______ 6201
Land (‘000 sq. km.) _____3287____ 9629 ______378_____ 9598 ____133875
GNP – (US $ Billion)2002- measured,PPP_502,2691_10110,10110_4266,3315_1210,5625_31484 ,46952
GNP per capita –measured (US $) 480____ 35060____ 33550___ 940______ 5080
GNP per capita – PPP (US $) 2570___ 35060____ 26070 __4390_______ 7570
GDP growth rate % (1990 – 2001) 5.9 _______3.4_______1.3____ 10________ 2.7
GDP per capita growth rate %(1990 – 2001) 4.0 _______2.1_______ 1.0___ 8.8________ 1.2

................................................India................ USA ..............Japan............ China............ World
Unemployment rate -% (2002) _______6 _________5.8_______ 5.4_______3.1________ ---
Share in GDP %
Poorest 20% ______________8.1________ 5.2_______ 10.6_____ 5.9 _________ ---
Richest 20% ______________46.1_______ 46.4_______ 35.7____ 46.6
Inflation – avg % (1990-01) ___________8.7________ 2.7________ 0.6_____ 7.6_________ ---
Poverty - % of population (2002) ______34.7_______ 14.1________ 3.7_____ 16.1________ ---
Adult illiteracy % (2001) Males ________31_______ 00_______ 00____ 08 _______---
Females ___________________________54________ 00_________ 00_____ 21_________ ---
Life Expectancy – yrs (01) Fem _________64________ 80__________85_____ 73_________ ---
Males _____________________________63________ 74__________78______ 69_________ ---