Businesss Environment

 MIXED ECONOMY

All Western European countries The balance between state provision (government planning) and free market provision is more or less equal. The government decides the “degree” of mixing. They will decide how much business activity there will be in the private sector and the public sector.

 • In the countries, where the government plays important - major economic role the social provision will tend to be greater, taxed higher and distribution of wealth and income more equal. (Sweden)

 • Whereas in countries where the private sector plays the most important economic role, social provision is lower with fewer free goods and services, also taxes will be lower and the distribution of wealth and income less equal.(GB) Some resources are allocated by the government and the rest by the market system. Most decisions are taken in the market place but the government plays an important role in modifying the functioning market.

 Role of government

 - Sets laws and rules that regulate economic life

 - intervention to control or regulate markets

 - Provide certain services e.g. education, police, defense healthcare

 - Regulate business

 – to ensure that there is fair competition in the private sector

- Restricts the consuming harmful goods by making them illegal or placing high taxes on them

 - Planning gives the government the power to give G&S, or money to the poorer people

 PUBLIC SECTOR – is responsible for the supply of public goods & services and merit goods. These goods are provided free when used and are paid by taxes e.g. roads, healthcare, street lighting The central or local government makes decisions regarding resource allocation in the public sector. In public sector, the state owns a significant proportion of production factors.

 PRIVATE SECTOR – firms in response to the demand or consumers needs and wants make production decisions In the private sector individuals are allowed to own the factor of production. Businesses are set up in this system by individuals to supply a wide variety of goods and services. Competition exists between these firms.

   THE ROLE OF GOVERNMENT IN A MARKET (MIXED) ECONOMY There are various opinions of various economic thoughts about the role of government interventions. Governments are generally argued to have four main macroeconomic goals:

- to maintain full employment

 - to ensure price stability

 - to achieve high level of economic growth

- to keep exports and imports in balance.

NATIONAL INCOME

There are different concepts of National Income, namely; GNP, GDP, NNP, Personal Income and Disposable Income.

‰ National income is the sum total of all the incomes earned by a nation during a particular period of time.

‰ National income shows how the income is distributed between the wages, interest, profit and rents.

 ‰ National income is treated as an index of the economic activity of a nation. If national income reduces, the government will cut down the taxes so that citizens will have more income to spend. ‰ GNP is the measure of money income in which all kinds of goods and services produced in a country and net income from abroad, during one year are taken into consideration. ‰

Market price of only final products shall be taken into account, while measuring GNP. ‰ Goods and services rendered free of charge are not included in GNP. ‰

 Transactions which do not arise from the production of current year are not included in GNP.

‰ Profits earned or losses incurred on account change in capital assets as a result of market fluctuation and illegal activities are not included in GNP.

 ‰ There are three approaches to estimate GNP namely,

1. Income method

 Wages and Salaries + Rent + Interest + Dividends + Undistributed Corporate Profits + Direct Taxes + Mixed Income + Indirect Taxes + Depreciation + Net Income from Abroad

1. Expenditure method

Private Consumption Expenditure + Gross Domestic Private Investment + Government Expenditure on Goods and Services + Net Foreign Investment.

3. Value added method The money value of all final goods and services produced at current prices during a year is taken into account.

ECONOMIC REFORMS

Economic reforms refers to the changes introduced by the Government to bring an improvement in the economy of the country.

Economic reforms refers to the introduction of innovative policies such as eliminating the market barriers, encouraging economic participation from private sector, reducing the fiscal deficit, increasing exports and reducing imports, etc. for increasing the growth rate of the economy.

Hence the government of India had to introduce a package of reforms which included:

1. To liberalize the industrial policy of the government and to invite foreign investment by privatization of industries and abolishing the license system as a part of that liberalization.
2. Automatic approval for Foreign Direct Investment (FDI) was introduced for many industrial sectors.
3. To make the import-export policy of the country more liberal and so that the export of Indian goods may become more easy and the necessary raw materials and instruments for both industrial development and production of exportable commodities may be imported and also to facilitate free trade by reducing the import duty.
4. To decrease the value of money in terms of dollar.
5. To take huge amount of foreign debt from the IMF and the world Bank for rejuvenating the economic condition of the country and to introduce the structural adjustment in the economic condition of the country as a pre-condition of that debt.
6. To reform the banking system and the tax structure of the country.
7. To establish market economy by withdrawing and restricting government interference on investment.
8. For several industries, the monopoly of public sector came to an end.
9. To encourage the private sector to make investment in large scale industries.

The main objectives of the new fiscal policy are, however, to establish economic structural adjustment at the first stage and then to establish market economy by removing all controls and restrictions on it.

The Economic liberalization have helped India to grow at faster pace. India is now considered one of the major economy of Asia. The Foreign investments in India have increased over the years. Many multinational companies have set-up their offices in India. The per-capita GDP of India have increased, which is a sign of growth and development.