What is Economic Environment?
Economic Environment defines as all the economic factors that influence consumer and commercial compliance. The economic factors or economic activities that affect the buying and selling practices of markets and customers are termed as Economic Environment. Hence the production of the business is influenced by it.
Mostly these determinants are beyond the control of the company, and maybe either small-scale (micro) or large-scale (macro).
Microeconomic factors determining Economic Environment of Business
The effect of the microeconomic factors is not at the large scale it does not affect the whole country or economy, its effect is limited to the consumer level or individual company. The microeconomic factors that influence a business are given below:
- Competitors in the market.
- The demand for the services or products.
- The market size of the product or service.
- Suppliers’ availability.
- Supply of goods – How you supply your goods that are the distribution chain of the company.
Macroeconomic factors determining Economic Environment of Business
The effect of the macroeconomic factors is not limited to the consumer level or individual company but it affects the whole country or economy. The microeconomic factors that influence a business are given below:
- Interest rates
- Tax rates
- Currency exchange rate
- Saving rates
- Consumer confidence levels
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Economic Environment in India
The government of India in July 1991, declared a new industrial system as a component of economic reformations. The key features of this reformed industrial system are given below:
- The number of enterprises decreased by the government of India below the mandatory licensing of six.
- Under the initial policy, many of the businesses held for the public sector were justified. Only for four important industries, the purpose of the public sector was defined.
- For many public sector companies, disinvestment was done.
- For the foreign funds, policies were expanded and the foreign equity partnerships were also extended. The foreign direct investment (FDI) of 100 percent was allowed in many ventures.
- For technology transactions with foreign firms now automatic approval was given.
- to channelize and support the foreign financing in India Foreign investment promotion board (FIPB) was set up.
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