BUSINESS ENVIRONMENT

R.K. Tomar
Economic System
An economic system is the sum total of
devices by which preferences among the
alternative purposes of economic activity
are determined and individual activities
are coordinated for the achievement of
those purposes.
Economic System
Capitalism
Socialism
Mixed Economy
Communism
Capitalism or Market
Economy
An economic system which is closely
related to market economies. Capitalism
is grounded in the concept of free
enterprises, which argues that govt.
intervention in the economy should be
restricted and that a free market, based
on supply and demand, will ultimately
maximise consumer welfare.
Capitalism or Market
Economy
Capitalism is a system in which, an
average, much of the greater portion of
economic life and particularly of net new
investment is carried on by private (non
government units)under conditions of
active and substantially free competition
and at least under the incentive of hope
for profit.
Capitalism Characteristics
Private property right
Price mechanism on demand and supply-
prices are not charged discriminately
Economic Freedom
Presence of competition (No Reservations)
Profit Motive
No central planning
Labour power is commodity
Based on Individualism
Capitalism Characteristics
Interdependence of entrepreneurs
Birth of big business houses due to large
profits and individual ownership
Eg. USA and Canada
Socialism-Planned/Command Economy

A socialist industry is one in which the

national instruments of production are
owned by public authority or voluntary
associations and operated not with a
view to profits by sale to other people,
but for the direct service of those whom
the authority or association represents
Socialism-Planned/Command Economy-
Characteristics

Central Planning
What and how much to produce?
Role of the state
Accumulates the sources of production
Determines the fields of business according to
priority.
Social ownership on the means of production
Economic and social quality
Labour as Trustee to the organisation
Socialism-Planned/Command Economy-
Characteristics

The socialist economy involves the

abandonment of free choices to the
individuals, as fundamental liberty,
consumption and production must fit
into central planning
Eg. Russia, Cuba and vietnam
Mixed Economy

Equal importance to public and private

sector of economy.
Mixed economy must be adapted for benefits
of vast majority of the people rather than for
a small aristocratic or capitalist people.
One of the pre-suppositions of a mixed
economy is that private firms are less free to
control major decisions about production and
consumption than they would be under
capitalist free enterprise, and that public
industry is free from government restrains
than it would be under centrally directed
socialist enterprise.
Mixed Economy-Characteristics

Co Existence of public and private sector

Economic welfare
Economic planning
Free and controlled economic development
Best allocation of resources
Balanced regional development
Industrial Policy from time to time
MRTP
FERA
FEMA
Eg. India, Poland
Communism

From each, according to his ability, to each,

according to his need.
It is socialism which abolishes private
membership and seeks to create classless
society.
A scheme of equalising the social conditions of
the life specifically, a scheme which
contemplates the abolition of in equalities in
the possession of property, is by distributing
all wealth equally to all, or by holding all
wealth in common for the equal use and
advantage of all.
Communism-Characteristics

Promoting equality
Sharing of work and benefits
Homogenous and small system
Cooperative society
No private property
Communist party is the only class
Less salary and more work
Citizens are hired employees of the state
Eg. China
Industrial Sectors in Indian Economy

Public Sector
Private Sector
Joint Sector
Public Sector (PSU/PSE)

Virtually no Public sector before 1947

Launched after Industrial policy 1956
Objectives
To promote rapid economic development
To generate financial resources
To promote redistribution of income and
wealth
To create employment opportunity
To promote balanced regional growth
Encourage the development of small scale
and ancilliary units
Public Sector (PSU/PSE)

Objectives
To promote exports on the one side and import
substitutions on the other.
Role
Filling the gaps in capital goods(heavy industries,
refinery etc.)
Employment
Balanced regional development
Contribution to public Exchequer
Export promotion and foreign exchange earning
Import Substituion
R&D
Public Sector (PSU/PSE)

Problems
Poor Project Planning
Over-Capitalisation
Excessive overheads
Overstaffing
Under utlisation of Capacity
Pricing Policy
Inefficient Management