Unit 1: Introduction to business environment & economic policy

The business environment is the sum of all external forces and institutions that affect a business but are largely beyond its control.

Significance: identifying opportunities and threats early, planning and strategy, adapting to change, and improving performance.

Environmental scanning is the continuous monitoring of the environment to spot trends and changes.

A mixed economy — like India's — combines private enterprise with a significant public sector and government regulation.

India began Five-Year Plans in 1951 under the Planning Commission to achieve growth, self-reliance, employment, reduced inequality and modernisation. In 2015 the Planning Commission was replaced by NITI Aayog (National Institution for Transforming India), which acts as a policy think tank promoting cooperative federalism rather than making five-year plans.

• Industrial policy: defines the roles of public and private sectors and licensing. The New Industrial Policy, 1991 abolished licensing for most industries, reduced public-sector reservations, and opened sectors to foreign investment.
• Fiscal policy: government taxation, expenditure and borrowing to influence the economy — used to control inflation, promote growth and reduce inequality. Tools: taxes, public spending, public debt and deficit financing.
• Monetary policy: the RBI controls money supply and credit. Quantitative tools: repo rate, reverse repo, CRR, SLR, open market operations; qualitative tools: margin requirements, credit rationing and moral suasion.
• EXIM policy (Foreign Trade Policy): promotes exports and regulates imports through incentives, export promotion schemes, SEZs and simplified procedures.