Business Environment Unit 1

Business may be understood as the organized efforts of enterprises to earn profit. Business
may be small or big in size, but all of them aim at making profit.
The purpose of business goes beyond earning profit. There are:
• It is an important institution in society.
• Be it for the supply of goods and services.
• Creation of job opportunities.
• Offer of better quality of life.
• Contributing to the economic growth of the country.
Hence, it is understood that the role of business is crucial. Society cannot do
without business. It needs no emphasis that business needs society as much.

Environment literally means the surroundings, external objects, influences or circumstances

under which someone or something exists. The environment of any organization is "the
aggregate of all conditions, events and influences that surround and affect it." Although there
are many factors the most important of the sectors are socio-economic, technological, supplier,
competitor and govt."

The term ‘business environment’ connotes external forces, factors and institutions that are
beyond the control of the business and they affect the functioning of a business enterprise.
These include customers, competitors, suppliers, government, and the social, political, legal and
technological factors etc. While some of these factors or forces may have direct influence over
the business firm, others may operate indirectly. Business Environment presents threats as well
as opportunities for any business.
Following are the features of business environment:
1. Dynamic: Business environment is dynamic in nature that means, it keeps on changing as
the time pass by.
2. Unpredictable: It is a very difficult to predict the exact nature of future happening and the
changes in economic and social environment.
3. Differ geographically: Business environment differs from place to place, region to region
and country to country. Political, economical, etc.
4. Interrelatedness: The different factors of business environment are co-related.
5. Complex: Business environment comprises of many factors which are related to each other.
Therefore, their individual effect on the business cannot be recognized. This is perhaps the
reason which makes it difficult for the business to face them.
 Components of Business Environment:

I. External Factors: The external factors are, by and large, beyond the control of a company.
The external or environmental factors such as the economic "factors, sociocultural factors,
government and legal factors, demographic factors, geo-physical factors etc. are, therefore,
generally regarded as uncontrollable factors.
Macro Environment: The macro forces are, generally, more uncontrollable than the micro
forces. When the macro environment is uncontrollable, the success of a company depends
on its adaptability to the environment.
1. Political Environment: Political environment refers to the influence exerted by the
three political institutions, viz., legislature, executive and the judiciary in shaping,
directing, developing and controlling business activities.

2. Economic Environment: Economic environment refers to all forces which have an

economic impact on business. Industrial production, agriculture, planning, basic
 income, national income, per capita income, money supply, price level, etc. are
major factors which make up the total economic environment.
3. Social Environment: Social and cultural environment refers to the influence
exercised by certain factors which are beyond the company’s gate. Such factors
include people’s attitude to work and wealth; role of family, marriage, religion and
education; ethical issues and social responsiveness of business.
4. Technological Environment: Technological environment exercises considerable
influence on business. Technology changes fast and to keep pace with it,
businessmen should be ever alert to adopt changed technology in their businesses.
5. Legal Environment: The political environment governs the legal and regulatory
environment of country. The regulatory environment plays a vital role by dictating
the do's and don'ts of a business. Every country has a different legal environment.
6. Natural/ Environmental Environment: Business, an economic pursuit of man,
continues to be dictated by nature. To what extend business depends on nature and
what is the relationship between the two constitutes an interesting study.

Micro Environment: The micro environment consists of the actors in the company's immediate
environment that affects the performance of the company. The macro environment consist
larger societal forces that affect all the actors in the company's micro environment.
1. Suppliers: Uncertainty regarding the supply or other supply constraints often compels
companies to maintain high inventories causing cost increases.
2. Customers: A business exists only because, of its customers. Monitoring the customer
sensitivity is, therefore, a prerequisite for the business success.
3. Competitors: A firm's competitors include not only the other firms which market the
same or similar products but also all those who compete for thee discretionary income
of the consumers.
 4. Marketing Intermediaries: Marketing intermediaries are vital links between the
company and the final consumers. A dislocation or disturbance of the link, or a wrong
choice of the link, may cost the company very heavily.
5. Financiers: Another important micro environmental factor is the financiers of the
company. Besides the financing capabilities, their policies and strategies, attitudes
(including attitude towards risk), ability to provide non-financial assistance etc. are very
important.
6. Publics: A public is any group that has an actual or potential interest in or impact on an
organization’s ability to achieve its interests. Media publics, citizen’s action publics and
local publics are some examples.

The Five Forces of Competition: Michael Porter provided a framework that models an industry
as being influenced by five forces. The strategic business manager seeking to develop an edge
over rival firms can use this model to better understand the industry context in which the firm
operates. According to Michael Porter the five forces of competition are:
1. Threat of Competitors: The rivalry among sellers in the industry.
2. Threat of New Entrants: The potential entry of new competitors.
3. Threat of Substitutes: Market attempts of companies in other industries to win customers
over to their own substitute products.
4. Bargaining Power of Suppliers: The competitive pressure stemming from the supplier seller
collaboration and resultant bargaining.
5. Bargaining Power of Buyers: The competitive pressure stemming from seller-buyer
collaboration and bargaining.

Internal Factors: The internal factors are generally regarded as controllable factors because the
company has control over these factors.
1. Culture and Value System: The value system of founders has a great and lasting impact on
the value system of organization. Value system not only influences the operations and
behavior it also influences the choice of business.
2. Mission and Objectives: The mission and objectives of the company guide priorities,
direction, of development, business philosophy, and business policy.
3. Management Structure and Nature: Structure is about the hierarchical relationship, span of
management relationship between different functional areas. Structures of top
management, pattern of shareholding etc.
4. Human Resource: The characteristics of the human resources like skill, quality, morale,
commitment, attitude etc., could contribute to the strength -and weakness, of an
organization.

Why to study business environment?

To be more specific, proper understanding of the social, political, legal and economic
environment helps the business in the following ways:
(a) Determining Opportunities and Threats
(b) Giving Direction for Growth
(c) Continuous Learning
(d) Image Building
(e) Meeting Competition
(f) Identifying Firm’s Strength and Weakness

SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats are considered to
be internal factors over which you have some measure of control. SWOT Analysis is the most
renowned tool for audit and analysis of the overall strategic position of the business and its
environment.
Its key purpose is to identify the strategies that will create a firm specific business model that
will best align an organization’s resources and capabilities to the requirements of the
environment in which the firm operates.
1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained. Strengths can be either tangible or intangible.
2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. Weaknesses are the factors which do not meet the
standards we feel they should meet. They must be minimized and eliminated.
3. Opportunities - Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use of opportunities.
4. Threats - Threats arise when conditions in external environment jeopardize the reliability
and profitability of the organization’s business. They compound the vulnerability when they
relate to the weaknesses. Threats are uncontrollable.

Some advantages of SWOT analysis are:

1. It is a source of information for strategic planning.

2. Builds organization’s strengths.
3. Reverse its weaknesses.
4. Maximize its response to opportunities.
5. Overcome organization’s threats.
6. It helps in identifying core competencies of the firm.
7. It helps in setting of objectives for strategic planning.
8. It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out.

Cultural Factors and its Impact on Business

The communicable knowledge, learned behavior passed on from generation to generation is
called as Culture. Variation in cultural factors should be considered by the management of a
business in order to succeed or failure. Major cultural factors affecting businesses:
➢ Language and communication: Communication of an international business can be affected
by language barriers. A business that knows how to communicate in different languages
enjoys the benefit of being able to convey the right messages to consumers or prospects.
➢ Religion: Religious beliefs in India vary. Religion affects the attitude or values of customers
on the products or services that are offered by businesses. Sometimes this can be a blessing
because the religious are your target audience. It’s true that religion can narrow your target
audience. Religion may also impact their business as a whole. How an entrepreneur
practices their business or the rules they follow, their ethics and guidelines, some of this can
be attributed to their religion.
➢ Social Organization
➢ Technology and material culture: No matter the size of your enterprise, technology has
both tangible and intangible benefits that will help you make money and produce the
results your customers demand. Technological infrastructure affects the culture, efficiency
and relationships of a business. It also affects the security of confidential information and
trade advantages.
➢ Politics and Laws: With a change in administration policies, there arise political factors that
can change the entire business scenario. These changes can be economic, legal or social and
can include the factors: Tax and economic policies, Political stability, Foreign Trade
Regulations and Employment Laws.
How Social Sectors Affects the Business?

• Poverty: People in poverty have less (or no) money to spend which affects the amount of
products or services companies sell on the market. People in poverty, generally, have not
been able to obtain higher levels of education. This is bad for business because modern
companies need qualified workers to develop and perform better. Since poverty affects
quality of life and access to healthcare, people in poverty are more prone to getting ill or
acquiring a disabling condition, which affects the company they work for.
• Labor / employment: Unemployment can be defined as a state of no work for a man fit and
willing to work. It is a condition of involuntary and not voluntary idleness. Economists and
social thinkers have classified unemployment into various types. Generally unemployment
can be classified in two types:
 Voluntary unemployment: In this type of unemployment a person is out of job of his own
desire doesn't work on the prevalent or prescribed wages. Either he wants higher wages or
doesn't want to work at all. It is in fact social problem leading to social disorganization.
Involuntary unemployment: In this type of situation the person who is unemployed has no
say in the matter.
• Development of Women and children
• Education, Health, population, Empowerment of Socially disadvantaged
• Health, Population and Family Welfare
• Public amenities in rural/urban areas: Today, rural markets are critical for every marketer.
Thanks to television, customers in rural areas are quite literate about myriad products that
are on offer in the marketplace today. The Indian rural market with its vast size and demand
base offers a huge opportunity that MNCs cannot afford to ignore. With 128 million
households, the rural population is nearly three times the urban population.

A country is ranked on its ability to provide to its citizens the three basic amenities of life
belonging to social sector:
Most people would agree that a long and healthy life, access to knowledge, and a decent
material standard of living are the basic building blocks of well-being and opportunity. They are
also the building blocks of the American Human Development Index as well as the U.N. Human
Development Index upon which it is modeled.
A LONG AND HEALTHY LIFE: Advancing human development requires, first and foremost,
expanding the real opportunities people have to avoid premature death by disease or injury, to
enjoy protection from arbitrary denial of life, to live in a healthy environment, to maintain a
healthy lifestyle, to receive quality medical care, and to attain the highest possible standard of
physical and mental health.
ACCESS TO KNOWLEDGE: Access to knowledge is a critical determinant of long-term well-being
and is essential to individual freedom, self-determination, and self-sufficiency. Education builds
confidence, confers status and dignity, and broadens the horizons of the possible—as well as
allowing for the acquisition of skills and credentials.
A DECENT STANDARD OF LIVING: Income is essential to meeting basic needs like food and
shelter—and to moving beyond these necessities to a life of genuine choice and freedom.
Income enables valuable options and alternatives, and its absence can limit life chances and
restrict access to many opportunities. Income is a means to a host of critical ends, including a
decent education; a safe, clean living environment; security in illness and old age; and a say in
the decisions that affect one’s life.
SOCIAL RESPONSIBILITY OF BUSINESS:
Social responsibility of business refers to the obligation of business enterprises to adopt policies
and plans of actions that are desirable in terms of the expectation, values and interest of the
society. It needs to be noted that the responsibilities of those who manage the business cannot
be limited to the owners. They have to take into account the expectations of other stakeholders
like the workers, the consumers, the government and the community and public at large.
(a) Responsibility towards the shareholders or owners: The shareholders or owners are those
who invest their money in the business. They should be provided with a fair return on their
investment. You know that in case of companies it takes the form dividends.
(b) Responsibility towards the Employees: A business enterprise must ensure a fair wage or
salary to the workers based on the nature of work involved and the prevailing rates in the
market.
c) Responsibility towards the Consumers: A business enterprise must supply quality goods and
services to the consumers at reasonable prices.
(d) Responsibility towards the Government: A business enterprise must follow the guidelines
of the government while setting up the business
(e) Responsibility towards the Community: Every business should preserve and promote social
and cultural values, generate employment opportunity and contribute towards the upliftment
of weaker sections of the society. It must take every step to protect the physical and ecological
environment of the society. It should contribute to the community development programs like
public health care, sports, cultural programs.

Arguments for Social Responsibility

• Business has to respond to the needs and expectations of society
• Improvement of the social environment benefits both society and business
• Social responsibility discourages additional governmental regulation and intervention
• Business has a great deal of power, which should be accompanied by an equal amount of
responsibility
• Internal activities of the enterprise have an impact on the external environment
• The concept of social responsibility protects interests of stockholders
• Social responsibility creates a favorable public image
• Business has the resources to solve some of society’s problems
• It is better to prevent social problems through business involvement than to cure them.

Arguments against Social Reasonability

• Social responsibilities could reduce economic efficiency
• Social responsibility would create excessive costs for business
• Weakened international balance of payments
• Business has enough power, and social involvement would further increase its power and
influence
• Business people lack the social skills necessary to deal with the problems of society
• Business is not really accountable to society.
Social Stakeholders: Managers, who are concerned about corporate social responsibility, need
to identify various interest groups which may affect the functioning of a business organization
and may be affected by its functioning. Business enterprises are primarily responsible to six
major groups:
• Shareholders
• Employees
• Customers
• Creditors, suppliers and others
• Society
• Government.
These groups are called interest groups or social stakeholders. They can be affected for better
or worse by the business activities of corporations.

Pyramid of Corporate Social Responsibility:

The Corporate Social Responsibility (CSR) has been around since the 1950s. The basis of what
we consider to be the modern definition of CSR is rooted in Archie Carroll’s “Pyramid of
Corporate Social Responsibility.” In this Pyramid a corporation has four types of responsibilities.
The four responsibilities displayed on the pyramid are:
ECONOMIC: This is the responsibility of business to be profitable. Only way to survive and
benefit society in long-term
LEGAL: This is the responsibility to obey laws and other regulations. E.g. Employment,
Competition, Health & Safety
ETHICAL: This is the responsibility to act morally and ethically. With this responsibility,
businesses should go beyond narrow requirements of the law. E.g. Treatment of suppliers &
employees
PHILANTHROPIC: This is the responsibility to give back to society. The responsibility is
discretionary, but still important. E.g. charitable donations, staff time on projects.

Economic environment and business

Business fortunes and strategies are influenced by the economic characteristics and economic
policy dimensions. The economic environment includes the structure and nature of the
economy, the stage of development of the economy, economic resources, the level of income,
the distribution of income and assets, global economic linkages, economic policies, etc.
Important economic factors are described below.
Nature of the Economy: The general level of development of the economy has a lot of
implications for business – it has significant bearing on the nature and size of demand,
government policies affecting business, integration with the world economy, etc.
Structure of the Economy: The structure of the economy – factors such as contribution of
different sectors like primary, secondary and tertiary sectors; large, medium, small and tiny
sectors to the economy, and their linkages, etc. are important to business because these factors
indicate the prospects for different types of business, certain factors which affect the business,
etc.
Economic Policies: There are several economic policies which can have a very great impact on
business. Important economic policies are industrial policy, trade policy, foreign exchange
policy, monetary policy, fiscal policy, and foreign investment and technology policy. The
economic policy of the government, needless to say, has a very great impact on business.
Industrial Policy: Industrial policy can even define the scope and role of different sectors like
private, public, joint and cooperative, or large, medium, small and tiny. It may influence the
location of industrial undertakings, choice of technology, scale of operation, product mix and so
on. The liberalization has enormously expanded the business opportunities. It has at the same
time tremendously increased the competition tending to make survival of the fittest the order.
While many companies entered new businesses, many exited from some of their old
businesses, unable to be competitive in the new environment. A number of companies have
done both.
Trade Policy: The trade policy can significantly affect the fortunes of firms. Trade policy is,
often, integrated with the industrial policy. As part of the economic liberalization and WTO
compliance, India has very substantially liberalized imports. Domestic firms now face increasing
competition from imports. In other words, they face a growing international competition in the
domestic turf. Liberalization of imports facilitates global sourcing and this could help many
Indian firms to become more competitive.
Foreign Exchange Policy: Exchange rate policy and the policy in respect of cross-border
movement of capital are important for business. For example, the abolition/liberalization of
exchange controls all around the world since the late 1970s has encouraged cross-border
movement of capital.
Monetary and Fiscal Policies: Monetary Policy of the Central Bank (Reserve Bank of India) has
an important role in regulating prices and investment. Business prospects are also affected by
the cyclical changes in the economy. Monetary and fiscal policies have a role in dealing with the
cyclical fluctuations.
Income: Income of customers indicates their ability to spend on the products sold by the
marketer. The marketer not only needs to estimate the income of customers, but he also has to
decipher the products on which the customer would be willing to spend his money. However,
marketers should be wary of making generalizations while using income as indicator of
consumer spending, as customers’ propensity to spend depends on cultural factors as well.
Inflation: Inflation refers to an increase in prices without a corresponding increase in wages,
resulting in lower purchasing power of consumers. An economy should try to achieve low rate
of inflation. The best way to achieve a low rate of inflation is to ensure that products and
services are produced efficiently.
Recession: Recession is a period of economic activity when income, production and
employment tend to fall. Demand for products and services are reduced. Specific activities
cause recession.
Interest Rate: If interest rate in an economy is high, businesses will borrow capital at a higher
rate and they will set up new businesses only when they are convinced that they can earn at a
rate higher than the interest rate they are paying on the capital.
Exchange rate: Exchange rate becomes a very important driver of performance when a
company exports its products, and when it imports materials and components for making its
products. It is more profitable to export when the currency of the exporting country is weaker
than the currency of the importing country. But this advantage is nullified if materials and
components are imported from a country whose currency is stronger. A company will run its
most profitable operations when it exports its product to a country whose currency is stronger,
and imports material and components from a country whose currency is weaker.
Geographical conditions affecting Business

The geographical and ecological factors, such as natural resource endowments, weather and
climatic conditions, topographical factors, locational aspects in the global context, port
facilities, etc. are all relevant to business. Geographical and ecological factors also influence the
location of certain industries. Weather and climatic factors affect the demand for certain type
of products. Weather and climatic factors can affect the demand pattern for clothing, building
materials and designs, food, medicines, etc. Further, weather and climatic conditions may call
for modifications to the product, packaging, storage conditions, etc.

The dreadful natural disasters that ravaged several areas across the world and the potential
for such occurrences in a number of other places would influence the decision making in
respect location of business. Ecological factors have recently assumed great importance.
The depletion of natural resources, environmental pollution and the disturbance of the
ecological balance has caused great concern. Government policies aimed at the
preservation of environmental purity and ecological balance, conservation of non-
replenishable resources, etc. have resulted in additional responsibilities and problems for
business, and some of these have the effect of increasing the cost of production and
marketing. Externalities have become a very important problem the business has to
confront with.
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

HANDOUT SERIES -1

UNIT ONE- BUSINESS ENVIRONMENT

This unit will help you in giving the answer to following questions:-

Q1. What do you mean by business environment?

Q2. Discuss various components of Business Environment?

Q3. Internal and External factors responsible for Strength, Weakness, Opportunities
and Threats of Business.

Introduction

Before understanding business environment let us understand what business is_____

Organized efforts of enterprise to supply consumers with goods and services for
profit.

What ever be the size……main aim of business is PROFIT.

All countless activities involved in bringing raw materials to the factory and the
end product from there to the market constitute a business.

informationglobalization
government
competition
interference

vast
diversification
canvas

change BUSINESS science

Figure: 1- changes in the form of business

Page 1 of 14
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MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Components and Significance of Business Environment

A business environment comprises a number of environmental factors which have to be

considered while making business policy.

Any change in those factors of the environment is bound to lead to corresponding

changes in the business policy of the organization.

Aggregate of all conditions, events and influences that surround and affect business is
called as business environment.

There are two set of factors which influence business policy of organization.

Internal – Controllable Factors

External – Uncontrollable Factors

Internal environment of business

The internal environment consists of large number of factors which contribute to success or
failure of an organization. These comprises of strength and weakness of the organization.

*Organizational resources *Research and development / technological capabilities

*Financial capability *Marketing capability *Operational capability

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 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Success or failure of the organization is because of internal factors which determine Strength and
Weakness of the Organization.

OPERATIONAL
CAPABILITIES

MARKETING ORG
CAPABILITIES RESOURCES

INTERNAL
FACTORS

SALES
R&D &
DISTRIBUTION

FINANCIAL
CAPABILITIES

EXTERNAL ENVIRONMENT

The environment includes the factors outside the firm which can lead to opportunities or threat to the
firm.

The business environment means the external environment and factors outside the firm which
can lead to Opportunities for or Threat to the firm.

The Factors External are:

*Economic *Government *Legal *Technological

*Geographical *Social etc.

PEST analysis can be done after doing External Business Analysis

Political / legal factors

Economic factors

the microeconomic environment the macroeconomic environment

Social / cultural factors

Technological factors

Page 3 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Why to study Business Environment?

It helps Organization to develop its broad strategies and long term policies.

It enables an organization to analyze its competitions strategies and thereby formulate

effective counter strategies.

To keep the organization dynamic.

To foresee the impact of socio economic changes at the national and international level on
its stability.

Friendly atmosphere can be created by the managers by adjusting prevailing conditions and
influencing the environment.

social
locational economic

competition cultural

MY
labours geographical
BUSINESS

government
technological
policies

ecological political
legal

Page 4 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Cultural factors and its impact on business

Communicable knowledge, learned behavior passed on from generation to

generation is called as Culture.

Culture enables people to live together in a society within a given

geographic environment, at a given state of technical development and at
a particular moment in time

Technology and
Social
Language Religion Material Politics Law
Organization
Culture

The way one can adapt the changes in the culture

Page 5 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Social factors affecting business

Poverty
Public
amenities in Labour /
rural/urban employment
areas

SOCIAL SECTOR REFERS

Empowerment of TO SERVICES Development of
socially AVAILABLE IN THE women and
disadvantaged GIVEN children
FIELDS

Population Education

Health

A country is ranked on its ability to provide to its citizens the three basic amenities of life
belonging to social sector

Longevity and health

Education

Decent standard of living

Sentiments and emotions attached to custom affect business.

People in different cultures form definite attitudes towards what is desirable and what is
undesirable.

Even the eating habit of people and time on which the food has to be taken is a part of
custom/caste.

Page 6 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Industrialization and urbanization has caused the change in the taste of the people causing fast
disappearance of cottage industries.

The break ups in joint family the joint family business is also fast disappearing.

With the emergence of nuclear family, the saving and investment has also increased facilitating
the growth in company form of business.

Business is a social institution, people work and live together in business organization.

Every business organization has a social responsibility and has to operate within the norms of
the society and survive only if it fulfills the need and wants of the society.

Examples

Providend fund schemes for employees

Sweat shares

Hospitals/ schools/ charitable trusts

Page 7 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

social responsibility and business

The basic need of social responsibility is because

The iron law of responsibility: Those who do not use power in the manner which society
considers responsible will tend to loose it.

To fulfill long run self interest

To establish a better public image

To avoid government regulation or control

To avoid misuse of national resources and economic power

To reduce conflict between management and trade unions

Argument against Corporate social responsibility:-“Businesses are owned by their shareholders -

any money they spend on so-called social responsibility is effectively theft from those
shareholders who can, after all, decide for themselves if they want to give to charity. “

Page 8 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Economic environment and business

The purpose, or reason, for developing an economic analysis of a region or specific country, is
directly related to the ability to subsequently make managements decisions about whether to do,
or not do certain business things in that country or with that country.

The factors which make us think which affect

Per capita business:
income
Inflation National
rate income
Income distribution & flexible income

Available Productivity: Unit labor costs and labor

Exchange
rate
natural compensation costs compared
resources
BUSINESS
Relates to how much it costs in various
regions for our competitors to
Interest Infrastructure manufacture stuff, or how much it costs us
rate development
for labor to have products made.
Industrial Employment
development generation
We are labor intensive or capital
intensive.

Major international debtors and debts

relates to the financial burden on govt. to tax us and companies (trade surplus, trade
deficit, bond debt)

Inflation, interest rates, availability of credit

Age distribution

effects lifestyle things such as transportation, food consumption, entertainment, living

accommodations

Increased risk of violence and terrorism on a national and international scale.

Trade surplus and B O P structure.

Education And Literacy Rates

Population Density

Rural - Urban Population Shifts

Economic Analysis In A Management Context

Page 9 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

When You gather information, according to the above headings, keep in mind, the
"So what" factor,*
meaning So what if 71% of the people have cell phones,
- how does knowing this help me make a decision about my company's product colour, shape,
pricing, promotional mix, distribution etc.

Business can not control the economic forces rather economic forces affect the business.

Every day there are individuals, businesses and governments engaged in economic activity. i.e.
buying and selling

Decisions about what to buy and when from individuals, government and businesses drives the
whole economy.

Every act of buying and selling - no matter how large or small - contributes to what we call 'the
economy'.

The overall effect depends on how many people make decisions on whether to buy or sell.

Capitalism Economy: Private ownership of production and distribution facilities is there as in

USA, JAPAN, UK.

Communalism economy: State/Govt. owns all the factors of production and distribution as in
CUBA.

Mixed economy as of India, Holland, France

Economic and business environment in India

India and six other countries viz. Bangladesh, Bhutan, Maldives, Nepal, Srilanka and Pakistan
launched the south Asian association for regional cooperation called as SAARC in 1985 to
accelerate the economic development in the region.

The main purpose of the cooperation is to look onto welfare of peoples of south Asia and
improving their quality of life and to promote and strengthen collective self reliance among these
countries.

Our economy is rural in nature.

Agriculture plays a important role apart from service sector also playing the major role.

Now a days major contribution in GDP of agriculture sector has gone down.

Looking onto the need of an hour we are now concentrating onto the manufacturing sector.

Government control has reduced on foreign trade and investment.

Since 1990 the growth rate of 6% has been observed in Indian economy.

Because of large numbers of well educated people we have become a major exporter of software
services.

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 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Despite strong growth the worry is about the continuing public sector budget deficit aprox. to
10% GDP.

Geographic factors and Business

Climatically Conditions

Overall the poorest countries are in the tropics, where it is hot, the
Geographic land is less fertile, water is more scarce, where diseases flourish.
locations
Europe and North America profit from huge tracts of very fertile
land, a temperate climate, and good rainfall.

In extremes of climate, either hot or cold, too much energy goes

into the simple business of survival for there to be much leftover
Geographic energy for development.
factors
One have to work twice as hard to get enough to eat out of the
ground, you have to irrigate where others can depend on rainfall.
Climatic Seasonal
conditions variations
Rain patterns may give a short growing season, while others can
get two harvests in one year. Some countries are just at a natural
disadvantage.

Geographical conditions affecting Business

Geographical location plays a part in access to markets.

All the great empires have been based around trade routes.

There are notable exceptions, the medieval Mongol empire was based on the Silk Road from China to the west.

Many of the world’s poorest countries are severely hindered because they are landlocked; situated in high
mountain ranges; or lack navigable rivers, long coastlines, or good natural harbors.’

China has three of the world’s busiest ports, and so does the US. With ports they can raise money through tolls
and shipping services.

If you have no access to the coast, not only do you miss out on these services, you have to transport everything
by land, which is much more expensive.

Countries like Afghanistan, Rwanda, Malawi, or Bolivia are all hindered by access to ports. Other countries, like
Ethiopia or Lesotho, are not only landlocked, but mountainous as well, making trade even more expensive.

Page 11 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Geographical Resources

Natural resources are one of the most important gift of God to any country either renewable or
non renewable resources.

Oil is the most obvious. Nobody is any doubt about how Saudi Arabia or UAE make their
money. Among other advantages, gold and diamonds have helped South Africa build the most
successful economy on the continent. These are all non-renewable resources – once they’re gone,
they’re gone, but while stocks last there is wealth to be made.

Besides these there are renewable resources – forests, fish, stocks that, if correctly managed, will refresh
themselves. Much South American development has been based on the Amazon rainforest, in natural
rubber and then timber.

Finally, there is what is sometimes called ‘flow resources’. These are renewable that need no
management, wind, tide and solar resources. The Earth Policy Institute describes the American
Great Plains as ‘the Saudi Arabia of wind energy’, while sunshine-rich places like California,
Sicily and Portugal are able to invest in solar power.

No natural resource is a license to print money, and there are plenty of poor countries who are
rich in resources.

Political Stability, Sovereignty and its impact on the returns of Business

There can be various forms of Govt.

Rule by one (monarchy)

Rule by few (aristocracy)

Rule by many (democracy)

Today the world seemed to have agreed that democracy is the best solution.

Page 12 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

The Government policies are affecting business in various ways. The Government policy creating
economic risks can be seen affecting:

Policy on Exchange controls

Stem from shortages of foreign exchange held by a country.

Local-content laws

Countries often require a portion of any product sold within the country to have local content.

Import restrictions

Selective restrictions on the import of raw materials to force foreign industry to purchase more
supplies within the host country and thereby create markets for local industry.

Tax controls

A political risk when used as a means of controlling foreign investments.

Price controls

Essential products that command public interest.

Labor unions

Have strong government support that they use effectively in obtaining special concessions from
business

One or a group of nations may boycott another nation,

Thereby stopping all trade between the countries, or may issue sanctions against the trade of
specific products.

U.S. boycotts of trade with Cuba/Iran

History indicates that sanctions are often unsuccessful in reaching desired goals, particularly
when other major nations’ traders ignore them.

Page 13 of 14
 Transnational Knowledge Society Group of Institutions
MBA- I SEM- BUSINESS ENVIRONMENT- FT 105C
SUMEET KHURANA

Products that have or are perceived to have an effect on the environment, exchange rates,
national and economic security, and the welfare of people and that are publicly visible or subject
to public debate, are more likely to be politically sensitive.

Health is often the subject of public debate, and products that affect or are affected by health
issues can be sensitive to political concern.

Forecasting Political Risk

Political risk assessment is an attempt to forecast political instability to help management

identify and evaluate political events and their potential influence on current and future
international business decisions.

The greater the risk to international marketers is the threat of the government actually failing,
causing chaos in the streets and markets.

Risk assessment is used to estimate the level of a risk a company is assuming when making an
investment and to help determine the amount of risk it is prepared to accept.

Relations between governments and MNCs are generally positive if the investment:

Improves the balance of payments by increasing exports or reducing imports through import
substitution
Joint ventures
Uses locally produced resources

- Political - Expanding the

Transfers capital, technology, and/or skills payoffs investment base

Create jobs

Make tax contributions

- Political
- Licensing
bargaining
Strategies that MNCs use to minimize political risk

- Planned
can be seen from the given diagram:- domestication

Minimizing political risk

If a company is considered vital to achieving national economic goals, the host country often
provides an umbrella of protection not extended to other.

Page 14 of 14
UNIT 2
ECONOMIC PLANNING AND
DEVELOPMENT
The development of the global economy can be traced back many hundreds of years when
traders from the east and west came together to exchange goods.

Economic Environment:
The economic environment refers to all the economic factors that affect commercial and
consumer behavior. The economic environment consists of all the external factors in the
immediate marketplace and the broader economy. These factors can influence a business, i.e.,
how it operates and how successful it might become.
The term economic environment refers to all the external economic factors that influence
buying habits of consumers and businesses and therefore affect the performance of a company.
These factors are often beyond a company’s control, and may be either large-scale (macro) or
small-scale (micro).

Macro factors include:

• Employment/unemployment
• Income
• Inflation
• Interest rates
• Tax rates
• Currency exchange rate
• Saving rates
• Consumer confidence levels
• Recessions

Micro factors include:

• The size of the available market

• Demand for the company’s products or services
• Competition
• Availability and quality of suppliers
• The reliability of the company’s distribution chain
 capitalistic ecomic
Types of Economic System: system

socialistic
economic system

Mixed economic
systen

Capitalism Socialism Mixed

In a capitalist This emphasis on efficiency Mixed economy is a system

economy, property and businesses are takes priority over equality, wherein both public and
owned and controlled by individuals. The which is of little concern to private enterprise occur. So,
production and prices of goods and the capitalist system. The essentially, private producers
services are determined by how in demand argument is that inequality is and government endeavors
they are and how difficult they are to the driving force that are operating in tandem in
produce, that consumers can choose the encourages innovation, the economy. In some sense,
best and cheapest products. Business which then pushes economic a mixed economy thus
owners should be driven to find more development. The primary combines both a socialist and
efficient ways of producing quality goods concern of the socialist capitalist approach to the
quickly and cheaply. This emphasis on model, in contrast, is an economic marketplace - by
efficiency takes priority over equality, equitable redistribution of allowing the government to
which is of little concern to the capitalist wealth and resources from provide enterprise in areas
system. The argument is that inequality is the rich to the poor, out of like health care or aerospace
the driving force that encourages fairness and to ensure "an while simultaneously allowing
innovation, which then pushes economic even playing field" in private producers or
development. opportunity and outcome. To companies to engage
achieve this, the state in production and
intervenes in the labor competition in the
market. marketplace.
Scope of Economics
Economists use different economic theories to solve various economic problems in society. Its
applicability is very vast. From a small organization to a multinational firm, economic laws come
into play. The scope of economics can be understood under two subheads:

Microeconomics
Microeconomics examines individual economic activity, industries, and their interaction. It has
the following characteristics:

Elasticity: It determines the ratio of change in the proportion of one variable to another
variable. For example- the income elasticity of demand, the price elasticity of demand, the
price elasticity of supply, etc.
Theory of Production: It involves an efficient conversion of input into output. For example-
packaging, shipping, storing, and manufacturing.
Cost of Production: With the help of this theory, the object price is evaluated by the price
of resources.
Monopoly: Under this theory, the dominance of a single entity is studied in a particular
field.
Oligopoly: It corresponds to the dominance of small entities in a market.
Macroeconomics
It is the study of an economy as a whole. It explains broad aggregates and their interactions
“top down.” Macroeconomics has the following characteristics:

Growth: It studies the factors which explain economic growth such as the increase in
output per capita of a country over a long period of time.
Business Cycle: This theory emerged after the Great Depression of the 1930s. It advocates
the involvement of the central bank and the government to formulate monetary and fiscal
policies to monitor the output over the business cycle.
Unemployment: It is measured by the unemployment rate. It is caused by various factors
like rising in wages, a shortfall in vacancies, and more.
Inflation and Deflation: Inflation corresponds to an increase in the price of a commodity,
while deflation corresponds to a decrease in the price of a commodity. These indicators
are valuable to evaluate the status of the economy of a country

Indian Economic System:

The Indian economy is the world's twelfth largest according to market exchange rates. It is also
the fourth largest economy by purchasing power parity (PPP) basis. From 1947 to 1991, the
India Economic System was based on social democratic-based policies. The policies feature
protectionism, extensive regulation and public ownership which led to slow growth and
corruption

History of the Indian Economy:

The economic history of India can be divided into three periods ranging from the pre-colonial
period lasting up to the 17th century, colonial period from the 17th century till independence in
1947 and post-independence.

Pre-colonial period:
The Indus Valley civilization which prospered between 2800 BC and 1800 BC had trade,
agriculture, made weapons and tools and used uniform weights and measures. The economy
was dependant on agriculture and isolated and self-sustaining. With the caste and the joint
family systems, there was division of labor. Goods like shawls, muslin, pepper, cinnamon, indigo
etc were traded with the Middle East, Europe and South East Asia. The economy was an
agrarian one by the time the British arrived which worked with the commercial, manufacturing
and credit networks. With the decline of the Mughal Empire, the Maratha Empire administered
parts of western, central south and north India. In the 1740's the budget of the Maratha Empire
was ` 100 million.
Colonial period:
With the British East India Company's rule, there were changes in various taxes from property
to revenue. This led to mass impoverishment, destitution of farmers and famines. The
handicrafts industry went bankrupt under the economic policies of the British Raj. A revival for
domestic-made products was started with the boycott of British products through the Swadesi
movement. India was a large market for quality European goods during this time.
Also at this time, free trade was encouraged, railways and telegraphs, civil service, a common-
law and legal system was established. With industrialization and India's colonization, there was
growth in production and trade in Britain. By the time of India's independence, its economy was
one of the poorest in the developing world. With the absence of industrial development and
agriculture not being able to feed a growing population, the country had one of the lowest life
expectancies in the world.

Independence till 1991:

The economic policies initiated post independence was influenced by the colonial experience.
Policies included protectionism, import substitution, intervention of the state in labor and
financial markets, industrialization, central planning, large public sector, business regulation.
Five-Year Plans were introduced which were similar to the central planning in the Soviet Union.
In the mid-1950s, industries such as electrical plants, water, insurance, mining,
telecommunications, steel, machine tools were nationalized. Between 1947 and 1990,
regulations and licenses were needed to set up businesses in India. This was termed as Licence
Raj and often included red tapism.
The economic policies in India were formulated and overseen by the first Prime Minister,
Jawaharlal Nehru along with statistician Prasanta Chandra Mahalanobis which was carried on
by Indira Gandhi. They hoped for a positive result as it included public and private sectors with
direct and indirect intervention of the state. The Green Revolution in India was introduced with
high-yielding seeds varieties, fertilizers and irrigation after 1965. This helped in making the
country self-sufficient and famine became a thing of the past.

From 1991 onwards:

The government led by Rajiv Gandhi in the late 80's relaxed restrictions, reduced corporate
taxes and removed price controls. There was increased rate of growth which led to high fiscal
deficits and declining current account. There was a major balance-of-payments crisis with the
collapse of the Soviet Union, which was the country's major trading partner and the first Gulf
War which led to increasing oil prices. The country faced a crisis on defaulting on its loans. It
asked a bailout loan amount of $1.8 billion from the IMF which asked for reforms.
Economic liberalization was initiated in 1991 by Prime Minister Narasimha Rao and his finance
minister Manmohan Singh. The reforms abolished the Licence Raj, ended public monopolies
which allowed automatic approval of foreign direct investment in various sectors. From that
period, liberalization has been the same for all governments. India has become one of the
fastest-growing developing economies since 1990. It is projected that in 2035, India will be the
third largest economy of the world after US and China.
Sectors of the economy

Agriculture:
In farm output, India ranks second in the world. In 2007, agriculture and forestry, logging and
fishing comprised 16.6% of the GDP which employed 60% of the population. Though its share of
the GDP has declined, it is still the largest economic sector and plays a major role in the socio-
economic development of the country. The country is the world's largest producer of tea,
turmeric, black pepper, ginger, milk, cashew nuts. It is also the second largest producer of
wheat, rice, groundnut, sugar and inland fish and third largest tobacco producer (2008
estimate). Around 10% of the world fruit production is from India with the highest production
of bananas, mangoes and sapotas (2008 est). India is the world's largest silk consumer and the
second largest silk producer.

Industry and services:

Around one-third of industrial labor works in simple household manufacturing processes.
The textile industry in India traditionally, after agriculture, is the only industry that has
generated huge employment for both skilled and unskilled labour in textiles. The textile
industry continues to be the second-largest employment generating sector in India. It offers
direct employment to over 35 million in the country.

Banking and finance:

The Indian money market is divided into the organized sector and unorganized sector. The
organized sector includes private, public and foreign owned commercial banks and cooperative
banks known as scheduled banks. The unorganized sector includes individual or family bankers,
money lenders and non-banking financial companies (NBFCs).

In 1969, 14 banks were nationalized by Prime Minister Indira Gandhi and six more nationalized
in 1980. It is mandatory that banks provide 40% of their net credit to important sectors like
agriculture, retail trade, small-scale industry, small businesses etc. In 2003, there were 98,910
bank branches. Around 75% of the banking industry's total assets are held by public sector
banks, 18.2% are held by private banks and 6.5% are held by foreign banks (2007 est).

Natural resources:
Around 56.78% of the total land area or 1,269,219 square kilometers are cultivable. The water
surface area is of 314,400 square kilometers. Around 92% of water is utilized for irrigation. The
country had the third largest fishing industry in the world in 2008. Major mineral resources
include manganese, bauxite, mica, titanium, limestone, chromite etc. India has 92 billion tonnes
of coal reserves which is 10% of world's coal reserves. The country has 11 billion barrels of oil
reserves. It also has 25% of world's thorium reserves. There are also various types of renewable
sources of energy available like solar, wind and biofuels.

Global trade relations:

The economy of India is depended on its large internal market. Around 1.45% of global
merchandise trade and 2.8% of global commercial services export was done by India. Till the
liberalization of 1991, the country's economy was protected from the world markets. Foreign
trade included export taxes, import tariffs and restrictions. There were restrictions on foreign
direct investment (FDI). For the first years after independence, exports were sluggish. Most of
the imports were equipments, raw materials, machinery as there was less industrialization.

Imports in the same period consisted predominantly of machinery, equipment and raw
materials, due to growing industrialization. In 2003-04, India's international trade
was ` 63,080,109 crores. Major trading partners of the country are the China, US, the UAE, the
UK, Japan and the EU. In April 2007, exports amounted to $12.31 billion. Major export
commodities in 2006-07 included petroleum products, gems and jewelry, iron ore, minerals etc.
Since 1947, India has been the founding-member of General Agreement on Tariffs and Trade
(GATT) which is now succeeded by WTO.

Balance of Payments:
The India Economic System also features India's balance of payments. With liberalization in the
1990s, exports have been increasing and in 2002-03, it covered 80.3% of its imports. The large
current account deficit was due to the country's oil import bill. India imported 120.1 million
tonnes of crude oil in 2007–08. Since 1996–97, India's overall balance of payments has been
positive. In 2008, India had $285 billion worth of foreign currency reserves. The trade deficit
was reduced to $252.5 billion due to global late-2000s recession.

Foreign Direct Investment in India:

The Indian economic system is the fourth-largest economy in the world. Therefore it is one of
the most preferred destinations for foreign direct investments (FDI). In a recent liberalized FDI
policy in 2005, up to 100% FDI can be invested. Up to 100 per cent FDI is allowed in the
construction business. In 2007-08, the FDI inflow was $24 billion.

Currency:
The only legal tender accepted in the country is the Indian Rupee. As of September 1, 2009, the
exchange rate was 49.0003 rupees to the US dollar, 77.60 to a UK pound and 77.60 to a UK
pound. The currency is also a legal tender in neighboring countries of Nepal and Bhutan. The
rupee is divided into 100 paise with the 1,000 rupee note as the highest-denomination
banknote and 25 paise coin the lowest-denomination coin. The Reserve Bank of India (RBI) was
established on April 1, 1935. It is the country's central bank, regulates and supervises the
financial system, issues currencies and manages exchange control. The bank is headed by a
governor appointed by the Central government and governed by a central board.
Primary sector:
It is Primary stage in economic development. It is exclusively relating to agricultural sector. It is
characterized by farm economy. It is the first sector of the Indian economy consisting of
agriculture, animal husbandry, dairying, forestry and fisheries. It was the first and the oldest
form of activity known to man everywhere. These occupations are primary because they are
the oldest occupations and many other sectors of the economy are depending on primary
sector. Because of this it received major attention of the Government and Five Year Plans. is the
sector of livelihood for any economy. In this stage the GNP and per capita income are low.

Secondary Sector:
lt is the secondary stage or called industrial sector It is characterised by the industrial
orientation of the economy. The secondary sector of the economy consists of small scale and
large scale manufacturing industries. These are secondary to primary occupation. This stage
commenced last phase of primary stage where production process mechanised This stage of
economy shows upward trend in GNP and per income. The industrial sector is again divided
into three sub sectors namely large scale, medium scale and small scale. scale industries include
cottage industries and village industries. The mixed economy consists of private sector, public
sector and joint sector. Industries depend upon agriculture to a considerable extent for raw
material and for their markets

Tertiary Sector:
It is also called as service sector, a third stage of economic development. It is characterised by
its technological orientation. The word tertiary means third in order. This sector does not
produce physical products but produces services. Hence, it is also called as service sector.
These services include railways, roadways, banking and insurance, transportation, tourism,
healthcare services, recreation and entertainment, communication, internet and
international trade, power, etc. Several companies have emerged to undertake service
activities. cannot For instance, transport is essential for marketing of goods and hence
modern economy exist without an efficient system of transport. Similarly, communication
services help in removal of barriers between regions.
Problem and Challenges in Indian Economic
Low level of national income and per capita income: Economic growth of any country can be
viewed from its level of national income and per capita income.

It is said that higher the level of national income, higher is the rate of economic growth.
Standards of living of masses are miserably low. Even the basic necessities are beyond the
means of the majority of population. Comparing India’s per capita income with the other
countries of the world, one comes to the conclusion that India is one of the poorest nations of
the world.

Vast inequalities in income and wealth:

Not only per capita income is low, but Indian economy is also marked by great inequalities in
the distribution of income and wealth. In India, as years roll on, inequalities are on the rise. The
logical corollary of this inequality is mass poverty.

Predominance of agriculture
Less developed countries live mainly upon agriculture and extractive industries, like mining,
fisheries and forests. Predominance of agriculture is explained from the viewpoint of sectoral
composition of national income and occupational pattern. In India, 52 p.c. of the total
population was engaged in agriculture. Though agriculture occupies a predominant position in
India, it is still backward.

Tremendous population pressure:

High birth rate (23.5 per 1000) coupled with low death rate (7.5. per 1000 in 2005-06) is the
genuine cause for population explosion in India. In the 20th century, India’s population went up
by 5 p.c. as against 3 p.c. increase in the world’s population as a whole.

Massive unemployment
Not only natural resources are under-utilised but also a massive wastage occurs in the case of
manpower resources. Slow economic growth rate on the one hand, and rapid growth of
population on the other hand, has accentuated the problem of unemployment in India.

Low level of technology

Due to illiteracy, use of advanced or sophisticated technology is rather an exception in India.
Because of the limited growth of technological institution, we are forced to use primitive
methods of technology whose productivity is low.
NITI AAYOG
NITI Aayog (Hindi for Policy Commission) (abbreviation for National Institution for
Transforming India) is a policy think tank of the Government of India, established with the aim
to achieve sustainable development goals with cooperative federalism by fostering the
involvement of State Governments of India in the economic policy-making process using
a bottom-up approach.

On 29 May 2014, the Independent Evaluation Office submitted an assessment report to Prime
Minister Narendra Modi with the recommendation to replace the Planning Commission with a
"control commission." On 13 August 2014, the Union Cabinet scrapped the Planning
Commission, to be replaced with a diluted version of the National Advisory Council (NAC) of
India. On 1 January 2015 a Cabinet resolution was passed to replace the Planning Commission
with the newly formed NITI Aayog (National Institution for Transforming India). The Union
Government of India announced the formation of NITI Aayog on 1 January 2015. The first
meeting of NITI Aayog was chaired by Narendra Modi on 8 February 2015.
Finance Minister Arun Jaitley made the following observation on the necessity of creating NITI
Aayog, "The 65 year-old Planning Commission had become a redundant organization. It was
relevant in a command economy structure, but not any longer. India is a diversified country and
its states are in various phases of economic development along with their own strengths and
weaknesses. In this context, a ‘one size fits all’ approach to economic planning is obsolete. It
cannot make India competitive in today's global economy." It is a reformation schemes of day-
to-day lifestyles of the people of India.
Why is it important?
A distinguished think-tank with strategic vision and expertise and the courage to offer objective
advice to the government is imperative in any democratic setup. This is especially so for India
given its mind-boggling complexity and diversity. The NITI Aayog, by giving States more control,
may also prevent ivory tower policymaking and give it a greater grassroots flavor.
OBJECTIVE OF NITI AAYOG

1. To evolve a shared vision of national development priorities, sectors and strategies with
the active involvement of States in the light of national objectives.
2. To foster cooperative federalism through structured support initiatives and mechanisms
with the States on a continuous basis, recognizing that strong States make a strong
nation.
3. To develop mechanisms to formulate credible plans at the village level and aggregate
these progressively at higher levels of government.
4. To ensure, on areas that are specifically referred to it, that the interests of national
security are incorporated in economic strategy and policy.
5. To pay special attention to the sections of our society that may be at risk of not
benefiting adequately from economic progress.
6. To design strategic and long term policy and programme frameworks and initiatives, and
monitor their progress and their efficacy. The lessons learnt through monitoring and
feedback will be used for making innovative improvements, including necessary mid-
course corrections.
7. To provide advice and encourage partnerships between key stakeholders and national
and international like-minded Think tanks, as well as educational and policy research
institutions.
8. To create a knowledge, innovation and entrepreneurial support system through a
collaborative community of national and international experts, practitioners and other
partners.
9. To offer a platform for resolution of inter-sectoral and inter departmental issues in
order to accelerate the implementation of the development agenda.
10.To maintain a state-of-the-art Resource Centre, be a repository of research on good
governance and best practices in sustainable and equitable development as well as help
their dissemination to stake-holders.
11.To actively monitor and evaluate the implementation of programs and initiatives,
including the identification of the needed resources so as to strengthen the probability
of success and scope of delivery.
12.To focus on technology upgradation and capacity building for implementation of
programs and initiatives.
13.To undertake other activities as may be necessary in order to further the execution of
the national development agenda, and the objectives mentioned in above.
NGO SECTOR IN INDIA:

NGO may be defined as an association having a definite cultural, educational, religious or social
program registered with the Central Government. The full form of NGO is Non-Governmental
Organization, also referred to as Non Profit Organizations (NPO’s) sometimes.
The non-government sector came into prominence in the late 1960s when a new generation
was maturing in post-Independence India. This was a generation that measured legitimacy of a
political party according to its skills in meeting popular aspirations.
Post-liberalization, the number of NGOs increased rapidly and over 70 per cent of the current
organizations came into existence (see Post-liberalization boom). “Foreign funding started
flowing in as government started to promote them,” says Ajay Mehta, member of task force
appointed by the Planning Commission on decentralized funding mechanism for the voluntary
sector. “Terms like civil society and participatory development came in vogue along with
liberalization,” says Madhuresh of National Alliance for People Movement, an association of
non-government groups.

Features of NGO’s:

1. Voluntary associations: NGOs are voluntary associations which are created by people having
a common interest
2. Autonomous: NGOs are autonomous bodies free from the interference of government. They
are regulated by their own policies and procedures.
3. Service Motive: NGOs are not profit making business organizations. Rather they show a lot of
concern in social welfare aspects such as education of children, protection of animals, wildlife,
environment, improving the status of women etc.
4. Own funds: NGOs create and maintain their own funds. They often collect contribution from
the public. Some NGOs are also financed by private business organizations. Some NGOs are also
financed by international authorities.