Entrepreneurship development and Industrial Consultancy

Module 1. Entrepreneurial environment

Lesson 1
ASSESSING OVERALL BUSINESS ENVIRONMENT IN INDIAN ECONOMY

1.1 Introduction

In layman’s language business means buying and selling of goods. It is referred to as an organized effort of enterprise to supply consumer with goods and services for a profit. This simple understanding is limited for assessing the role of environment in today’s global business activity. To gain better understanding, modern business may be defined as complex field of industry and commerce which involves activities related to both production and distribution. These activities on one hand satisfy society’s needs and desires and on the other hand bring profits to business firms.

1.1.1 Nature of modern business

The significant characteristics of modern business are: large size, oligopolistic nature, diversification, global presence, technology orientation, and government regulation.

a) Large size of business: Modern business is large in size. Private sector companies of India are not as large as some of the companies of developed nations in terms of sales and assets but are quite large by the standards of developing countries and compare favourably even with a large number of middle size companies of western world. The notable private sector large business organizations include Reliance, Tata, Larsen & Toubro, Bharati Airtel, Adani, etc.

b) Oligopolistic nature: Oligopoly is characterized by small number of firms seeking a homogenous or a differentiated product.

c) Diversification: In order to grow and expand, today business houses adopt the policy of diversification. The Tata is a big business organization of India. It has a diversified portfolio consisting of different automobiles, iron and steel, insurance, telecommunication etc. Reliance group also has a diversified portfolio of oil, telecom, textiles etc.

d) Global presence: In the wake of liberalization and reduction of trade restrictions, business organization also expands by doing the business overseas. The Indian companies like Reliance, Ranbaxy, Sundaram, Bajaj Auto, Tata etc also export their products to different nations of the world.

e) Technology orientation: To satisfy ever changing needs of large number of consumers, modern business organizations adopt new technology to introduce new products in the market. They spend considerable amount of their budget to research oriented activities directed to adopt new technologies.

f) Government regulations: with liberalization there is also reduction in government controls. But government control over business organizations is also necessary to correct market failures represented in the form of monopoly and pollution. Moreover government attempts to create stable market conditions by monetary and fiscal regulations.

1.1.2 Business environment

It refers to all external factors which have direct or indirect influence on functioning of business. It is divided in to two broad categories- external and internal environments. External environment is futher categorized as macro and micro environment.

Fig. 1.1 Macro and micro environment

At present Indian economy is characterized as developing economy. Indian economy is an agricultural economy. More than 50% population is dependent on agriculture.

1.2 Characteristic Features of Indian Economy

India has a mixed economy wherein both private and public enterprises prevail. Indian constitution allows private ownership of means of production. Thus private sector also exists with public sector. At the time of independence, due to huge resource requirement and long gestation period to realize profit, several sectors of the economy were developed under public sector mode by government. Although market mechanism in India is still not completely free from government control, it holds a predominant position in Indian economy. After liberalization in 1991, there is much higher growth in private sector compared to public sector.

1. Low per capita income: In 2009 India’s per capita income was Rs 37490 per annum. India’s per capita income is very low compared to developed nations of the world.

2. Unequal distribution of income and poverty: The inequality in income is gauged from unequal expenditure on house hold items. Wide spread poverty is also prevalent in India. Thus such a situation of poverty even after six decades of independence is detrimental to the appropriate growth of business. People below poverty line can not create large demands for industrial goods.

3. Agricultural based economy: India is referred to as agricultural country. At the time of independence around 70% of people were dependent on agriculture for their livelihood. This figure has not changed a lot. Only there is marginal decline in this number. In 2006-07, agriculture and allied activities contributed 18.5 percent of gross domestic product. This figure is still higher compared to many third world countries like Argentina, Brazil, Mexico etc. wherein contribution of agriculture is around 10% of GDP. Due to less productivity of agriculture sector compared to industrial sector, the people who are dependent upon it have less purchasing power.

4. Higher population: India is second largest populated country after China. This puts tremendous pressure on the existing natural resources.

5. Unemployment: Coupled with higher population growth rate, large scale unemployment and underemployment also characterizes the Indian economy.

6. Scarcity of capital: In India, saving and investment rates have risen at a low rate which can realize only a moderate growth rate. Due to this, there is scarcity of capital which does not allow business to grow at fast rate. It acts as hindrance to implement latest technologies.

7. Technological backwardness: Success of any business in today’s globalized competitive world depends on adoption of latest technology. Modern latest technology is certainly scale neutral, but it is not resource neutral. This acts as a hindering factor for large number of small and marginal farmers to adopt latest agricultural technology.

8. Limited Entrepreneur potential: An entrepreneur takes risks and ventures in to new business. This results in growth of economy. Unfortunately in India there are limited persons possessing entrepreneurial skills.

1.3 Assessing Overall Business Environment

India is a key player in the world economy. The Indian economy is much diversified. The diversity ranges from agriculture to latest modern technology. The contribution of agricultural activity to the GDP is less while it employs higher workforce. Still today it provides around 65 to 70 percent of direct and indirect workforce. This situation places burden on Indian economy. At the same time India has the comparative advantage with regards to higher proportion of people with technical skills and English language proficiency skill. This factor is conducive for entrepreneurs.

Indian economy has changed from controlled public sector to more liberalized system allowing both national and international players. Market has also changed from seller’s market with limited competition to buyer’s market with increased competition. These changes in competitive scenario also give rise to numerous entrepreneur opportunities.

Indian Economy has changed from quantitative restrictions and tariffs to quota free and open economy and from a restricted financial market to a liberalized financial market. All these major changes characterize the dynamic nature of Indian economy. The Indian economy has achieved a growth rate of about seven percent in recent years. In recent years, service sector contribution has increased as compared to other sectors.

Indian economy is considered as a developing economy based on its characteristic features. The salient features of Indian economy can be specified as predominance of agriculture, rapid, population growth, low per capita income, unemployment, capital scare economy.

Some of the problems of Indian economy are: inadequate employment opportunities, economic inequality, poverty, poor infrastructure, fiscal deficit and higher proportion of non performing assets.