Lesson 1. Assessing Overall Business Environment In Indian Economy, Globalization, Implications Of Social, Political And Economic Systems On Entrepreneurship


Assessing overall business environment in Indian economy

India's business environment has improved significantly after the commencement of economic reforms in early 1990s. The investors from all over the world find it quite easy to involve in business after the reforms. This has been possible with the help of foreign direct investment and trade liberalization. However, the US financial system has also adversely hit the Indian economy. Of course, as compared to other promising economies, India has several strengths that can help moderate the adverse effects of the worldwide economic crisis. In spite of the global crisis, Indian economy offers abundant opportunities for business.

In 1947 after gaining independence, India initiated a path of industrialization to Achieve economic prosperity. India focused on developing the manufacturing base. Much of the countries development was done through the five year plans. Industries like Iron and steel, oil refineries, cement and fertilizer were brought under the gamut of public sector enterprises. The decision makers then encouraged the development of Small scale industries. They perceived that Indian small scale industries would play a vital role in the economic progress of the country and had immense potential for employment generation. Developing small scale sector would also result in decentralized industrial expansion, better distribution of wealth and to encourage investment and entrepreneurial talent.

The government has initiated several policies for the development of small scale industries. They have made it compulsory for certain items to be manufactured only by the small scale segment. In 1999, the government also established the Ministry of Small Scale Industries and Agro and Rural industries to make policy decisions for the development and interests of the small scale industries.

In the beginning the small scale sector was considered as conventional labour intensive units with old-fashioned machineries and ineffective production techniques. But in the recent time the situation is different. Today they have installed up to date equipment, applied better administration techniques and are much more industrious than before.

Small Scale Industries are situated throughout the nation, though predominantly in the rural areas but they are skill based, wherein the skill for manufacturing is passed on from one generation to another.

These units generally manufacture textile handicrafts, woodcarving, stone carving, metal ware etc. Small scale manufacturing factories are also there in urban areas and more often than not they account for the utmost volume of production. For e.g. Tripper in Tamil Nadu accounts for small scale firms involved in Spinning, weaving and dying of cotton attire.


Post liberalization economic conditions have created enormous growth for the small scale industries. The government has also supported the small scale industries by the way of implementing various policies The New Economic Policy initiated in early 1990s in India had five main components. These are

(i) Depreciation of the Indian rupee in order to increase exports,

(ii) Dismantling of government controls over domestic business,

(iii) Privatization and Sale of public sector enterprises,

(iv) Liberalization of monopoly markets to raise overseas and domestic competition, and

(v) Globalization by opening the Indian market to foreign venture. Fundamentally, the new economic policy was a massive and radical change in the Indian economy. Under the new economic policy, infrastructural sectors such as power telecommunications, roads, ports, harbors, and civil aviation were chiefly targeted for liberalization, direct foreign investment, and privatization. Skilled and compliant manpower is crucial for economic growth. This is being provided by the Institutes of Technology, Institutes of Management, Business Schools, Institutes of Information Technology, etc. The massive increase in the middle class income with high purchasing power is supporting rapid development of consumer economy, and economy of the nation as a whole. It is worth noting that accomplishment of the National Rural Employment Guarantee Act (NREGA) is responsible for increasing the purchasing power of the people at the base. These are also contributing to fight economic collapse.


1. Strong growth momentum

Continuous progression of liberalization since 1991

Better openness to overseas deal and venture

Speedy expansion in export oriented IT and BPO industries

2. Opportunity

  • Big and speedily increasing domestic market

  • Large and low cost labour strength

  • Engineering/IT/English language skills

  • large availability of raw material

  • Political stability, agreement on economic policies

3. Growth constraints

  •  High economic deficits, over population and private investment

  • severe infrastructure bottlenecks

  •  Extensive government possession of commerce and domination in banking

  • Import tariffs and complex tax regimes

  • Restrictions on Foreign Direct Investment in several sectors

  • Disproportionate cost of doing business


Globalization is concerned with increasing economic openness, rising economic interdependence amongst the nations, and deepening economic integration.

The key features of globalization are

Economic features: expansion in trade, foreign direct investment and capital flows; mass production and utilization; global competition; trade and investment liberalization policies.

Non-economic features: Loss of national dominion; equivalence of values and cultures. Entrepreneurs must identify the opportunities and intimidation which arise from globalization in the developing countries. Some of them are as follows.


1. Opportunity to manufacture innovative and superior quality products and services and exporting them to other countries.

2. Generating buoyant marketplace for development of industry and services.


1) dominance of seed market by international companies and unfavorable effect on
     farmers' conventional constitutional rights to save and sell seeds.

2) decrease in subsidy, resulting in their increasing cost and a lesser amount of use by small and
    marginal farmers.

3) Import and removal of low cost agriculture and industrial products from outside countries, harmfully disturbing aboriginal production.

4) reimbursement mostly accumulate to large and rich farmers, as small farmers cannot go in for export oriented production.

5) Rise in the price of food grains.


The economic social, cultural, financial and rigid environment in a country affects the
   nature and growth of entrepreneurship.

The prerequisites of entrepreneurship:

• Access to funds

• Right regulatory and tax environment

• High personal and tax rates can significantly reduce risk taking ability of

• The social and cultural environment is the most important precondition In which accomplishment   and wealth creation are held in high regard.

• The countries where the motives of entrepreneurs are viewed as suspect,their financial gain is questioned.

• In some countries the failure of an entrepreneur can end an individual’s career.

• Yet few countries exhibit a collective preference for the second best, gallant runner up who is    poor but noble. These deep rooted social and cultural realities
  cannot be altered in short term. However successful companies may find ways to
  encourage and reward entrepreneurial behaviour consistently with social norms.

Working models for entrepreneurship worldwide: Based on government participation in economy and the way society values individual and joint action Accenture developed 3 explicatory models for circumstances under which entrepreneurship can flourish.

 I. The free market model: Ex: United States and Canada

• Role of government is partial.

• Public policy can create basic setting required for Entrepreneurial Culture

• But the rest is up to the private sector.

• This model thrives in such culture where entrepreneurial success is celebrated rather than denigrated

• The tax formation rewards initiative & financial gain

• Degree of social protection is fewer.

II. Guided individualism model: Ex: Singapore & Taiwan

• It is based on encouragement of individual enterprise

• Public policy determines broad sweep of entrepreneurial activity by signaling sectors /
  industries in which entrepreneurial energies can be directed.

III. Social Democrat model: ex: Sweden & Germany

• It combines encouragement of enterprise with emphasis on social protection

• Countries create a sort of social partnership with agreed up on  economic and social frame work by all partners.

Characterizing countries entrepreneurial Culture:

i) while determining the Government participation in the economy Entrepreneurship in any    country one should consider

• the taxation rate

• To what extent is state ownership seen as appropriate

• How country manage economy through set of laws

• readiness to protect, encourage trade & foreign investments.

• Labour laws, terms & conditions

ii) While determining the social respect for individual Vs collective action one should consider

• country’s fairly homogeneous culture

• Extent of wealth distribution-equal or unequal

• society’s reaction to success or failure

• people’e role in buiseness


Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya Publishing House, New Delhi.

www.navimumbaicollege.com/uploads/22BE.doc dated 15/03/2013

Last modified: Wednesday, 31 July 2013, 11:06 AM