MBM-Unit 3: Economic Environment (Reference Handouts)
MBM-Unit 3: Economic Environment (Reference Handouts)
MBM-Unit 3: Economic Environment (Reference Handouts)
Micro
Economic
Unit
(Business)
Incidentally, World Bank figures show that the world's GDP is at $54.347 trillion. India accounts
for just over 2 per cent of global GDP
The World Bank has classified the economies of the world on the basis of income and region
for the year 2006. This is a classification of all the member countries of the World Bank and other
economies with populations more than 30,000. The groups made are as follows:
Lower Income Economies (with $825 or less)
Lower Middle Income Economies (With $826-3,255)
Upper Middle Income Economies (With $3,256-10,065) and
High Income Economies (With $10,066 or More)
(Classification is made among the income groups as to 2004 GNI per capita and regions by using
the World Bank Atlas Method.)
Mixed economy is an economic system that incorporates aspects of more than one
economic system. This usually means an economy that contains both private-owned and
state-owned enterprises or that combines elements of capitalism and socialism, or a mix
of market economy and planned economy characteristics. There is not one single
definition for a mixed economy, but relevant aspects include: a degree of private
economic freedom (including privately owned industry) intermingled with centralized
economic planning (which may include intervention for environmentalism and social
welfare, or state ownership of some of the means of production).For some states, there is
not a consensus on whether they are capitalist, socialist, or mixed economies.
Economies in states ranging from the United States to Cuba have been termed mixed
economies.
India followed a socialist-inspired approach for most of its independent history, with strict
government control over private sector participation, foreign trade, and foreign direct investment.
However, since the early 1990s, India has gradually opened up its markets through economic
reforms by reducing government controls on foreign trade and investment. The privatization of
publicly owned industries and the opening up of certain sectors to private and foreign interests
has proceeded slowly amid political debate.
Disinvestments
Structural Adjustment Program (SAP)
Foreign Investments
Foreign trade promotion
After 1991
In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity
expansion for incumbents, removed price controls and reduced corporate taxes. While
this increased the rate of growth, it also led to high fiscal deficits and a worsening current
account.
The collapse of the Soviet Union, which was India's major trading partner, and the first
Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis
for India, which found itself facing the prospect of defaulting on its loans.
In response, Prime Minister Narasimha Rao along with his finance minister Manmohan
Singh initiated the economic liberalisation of 1991. The reforms did away with the Licence
Raj (investment, industrial and import licensing) and ended many public monopolies,
allowing automatic approval of foreign direct investment in many sectors. Since then, the
overall direction of liberalisation has remained the same, irrespective of the ruling party,
although no party has tried to take on powerful lobbies such as the trade unions and
farmers, or contentious issues such as reforming labour laws and reducing agricultural
subsidies.
Since 1990 India has emerged as one of the wealthiest economies in the developing
world; during this period, the economy has grown constantly, but with a few major
setbacks. This has been accompanied by increases in life expectancy, literacy rates and
food security.
The economy of India, measured in USD exchange-rate terms, is the twelfth largest in
the world, with a GDP of around $1 trillion (2008).
It recorded a GDP growth rate of 9.0% for the fiscal year 2007–2008 which makes it the
second fastest big emerging economy, after China, in the world. At this rate of sustained
growth many economists forecast that India would, over the coming decades, have a
more pronounced economic effect on the world stage.
Despite this phenomenal rate of growth, India's large population has a per capita income
of $4,542, measured by PPP, and $1,089, measured in nominal terms (revised 2007
estimate).
India is a major exporter of highly-skilled workers in software and financial services, and
software engineering. Other sectors like manufacturing, pharmaceuticals, biotechnology,
nanotechnology, telecommunication, shipbuilding, aviation , tourism and retailing are
showing strong potentials with higher growth rates.
India faces a fast-growing population and the challenge of reducing economic and social
inequality. Poverty remains a serious problem, although it has declined significantly since
independence. Official surveys estimated that in the year 2004-2005, 27% of Indians
were poor.
The Indian economy is the 12th largest in the world. That is, India's gross domestic
product stands at $1.171 trillion.
However, in terms of purchasing power parity, India is the world's fourth largest economy.
Its GDP in purchasing power parity terms is at $3.092 trillion.
The Planning Commission was set up by a Resolution of the Government of India in March 1950
in pursuance of declared objectives of the Government to promote a rapid rise in the standard of
living of the people by efficient exploitation of the resources of the country, increasing production
and offering opportunities to all for employment in the service of the community. The Planning
Commission was charged with the responsibility of making assessment of all resources of the
country, augmenting deficient resources, formulating plans for the most effective and balanced
utilization of resources and determining priorities. Jawaharlal Nehru was the first Chairman of the
Planning Commission. The first Five-year Plan was launched in 1951 and two subsequent five-
year plans were formulated till 1965, when there was a break because of the Indo-Pakistan
Conflict. Two successive years of drought, devaluation of the currency, a general rise in prices
and erosion of resources disrupted the planning process and after three Annual Plans between
1966 and 1969, the fourth Five-year plan was started in 1969. The Eighth Plan could not take off
in 1990 due to the fast changing political situation at the Centre and the years 1990-91 and 1991-
92 were treated as Annual Plans. The Eighth Plan was finally launched in 1992 after the initiation
of structural adjustment policies.
For the first eight Plans the emphasis was on a growing public sector with massive investments in
basic and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the
public sector has become less pronounced and the current thinking on planning in the country, in
general, is that it should increasingly be of an indicative nature.
Divisions
The 1950 resolution setting up the Planning Commission outlined its functions as to:
a. Make an assessment of the material, capital and human resources of the country,
including technical personnel, and investigate the possibilities of augmenting such of
these resources as are found to be deficient in relation to the nation’s requirement;
b. Formulate a Plan for the most effective and balanced utilisation of country's resources;
c. On a determination of priorities, define the stages in which the Plan should be carried out
and propose the allocation of resources for the due completion of each stage;
d. Indicate the factors which are tending to retard economic development, and determine
the conditions which, in view of the current social and political situation, should be
established for the successful execution of the Plan;
e. Determine the nature of the machinery which will be necessary for securing the
successful implementation of each stage of the Plan in all its aspects;
f. Appraise from time to time the progress achieved in the execution of each stage of the
Plan and recommend the adjustments of policy and measures that such appraisal may
show to be necessary; and
g. Make such interim or ancillary recommendations as appear to it to be appropriate either
for facilitating the discharge of the duties assigned to it, or on a consideration of
prevailing economic conditions, current policies, measures and development
programmes or on an examination of such specific problems as may be referred to it for
advice by Central or State Governments.
**************
Privatization is the incidence or process of transferring ownership of business from the public sector
(government) to the private sector (business). In a broader sense, privatization refers to transfer of any
government function to the private sector including governmental functions like revenue collection and law
enforcement. [1]
The term "Privatization" also has been used to describe two unrelated transactions. The first is a buyout, by
the majority owner, of all shares of a public corporation or holding company's stock, privatizing a publicly
traded stock. The second is a demutualization of a mutual organization or cooperative to form a joint stock
company.[2]
THERE WAS a time when holding a government job used to be considered something
prestigious. Even a lineman in telecom department, earning a meager salary, used to be looked
up with respect. This was the time when government sector had the monopoly and people from
private sectors were totally dependent on them.
Then privatization came and almost all the sectors be it telecom, electricity boards or banking got
privatized. Though with the privatization the prices of the services have gone up, but the
customer started getting more importance, which has also ended the monopoly of government
bodies like the MSEB, the BSNL.
The attitude of the government authorities has also undergone a sea change. I remember, few
years ago, when my telephone was not working; I had to beg an officer to get it fixed. God is
great, as I got my vendetta just a few weeks back. Again my telephone had some problem and
the same officer courteously assured me that the matter would be dealt with at the earliest.
I could have dialed 198 and asked to disconnect my connection, but his courteous behaviour
made me think again.
These days many banks are offering competent customer services. We now have a wide choice
and need not depend upon nationalized banks and their lazy employees. In fact everyone is
happy with the change in the working of government banks.
As far as television programs are concerned we had only a single choice i.e. Doordarshan. But
the consumers of today are spoilt with choice! All the channels are competitive, albeit charging
astronomical amounts, but they are giving better choice and quality. So DD metro has been left
far, far behind.
Though the power bills have gone up after Reliance and TATA started electricity generation,
complaints have comparatively decreased.
Other Articles by Kartikeya Dwivedi
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more >>
Privatization has boosted competition, which has further helped in improving the quality of
products, and at times, has reduced the cost also. For example, the cost of electronics has taken
a nosedive. Now it is not be so difficult for the consumer to buy a flat screen TV. Reliance has
made sure that each Indian can afford a mobile phone.
Most government bodies are running under losses and their losses are increasing with each
passing year. However, railway is an exception. Lalu Prasad Yadav has shown that profit can be
derived from anything ranging from ‘chara’ to trains! It should be taken as a wake-up call by other
departments.
India is a growing economy, where people don’t mind spending money. But because of its
lethargic polices it missed the bus and gave the chance to private companies to establish their
monopoly. Though Government sectors made the effort to catch up, but I think it is too late now
MBM 208- Reference Handout-Unit-3
PRIVATIZATION
A very broad term--but most simply, privatization is the transfer of assets or service
delivery from the government to the private sector. Privatization runs a very broad
range, sometimes leaving very little government involvement, and other times
creating partnerships between government and private service providers where
government is still the dominant player.
Merely defining "privatization" is difficult. In its purest form, the term refers
to the shifting of the production of a good or the provision of a service from
the government to the private sector, often by selling government-owned
assets.
A variety of alternative service delivery techniques can be employed to maximize efficiency and
increase service quality. Some methods will be more appropriate than others depending on the
service. In searching for ways of cutting costs and increasing delivery, consider using a
combination of these techniques:
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