Page 90 - DMGT401Business Environment

Unit 3: Economic Environment of Business

have performed well in human development. In the case of India, though the GDP is growing Notes
faster, its performance in terms of HDI is far below than that of many countries.

Importance of National Income

A national income measure serves various purposes regarding economy, production, trade,
consumption, policy formulation, etc. The need for estimation of national income, gives the
importance of national income:
1. To measure the size of the economy and level of country's economic performance.

2. To trace the trend or speed of the economic growth in relation to previous year(s) as well
as to other countries.
3. To know the structure and composition of the national income in terms of various sectors
and the periodical variations in them.
4. To make projection about the future development trend of the economy.
5. To help government formulate suitable development plans and policies to increase growth
rates.
6. To fix various development targets for different sectors of the economy on the basis of the
earlier performance.
7. To help business firms in forecasting future demand for their products.
8. To make international comparison of people's living standards.

Task Find out the various methods to calculate national income. Find which
country has the highest National income and which has the lowest.
3.4 Industrialization and Economic Development

For any economy, whether developed or developing, economic development is very important,
which is achieved largely through industrialization. However, even though we know that
higher productivity of industries leads to improved economic outcomes, there has been no
consensus among researchers about either the desired path of development or the role of state
in economic development. The appropriate strategy for any country depends not only on its
objective economic situation but also on its government policies and national views regarding
the appropriate role of the state.
India's economic development strategy immediately after Independence was based primarily
on the Mahalanobis model, which gave preference to the investment goods industries sector,
with secondary importance accorded to the services and household goods sector.

Example: The Mahalanobis model placed strong emphasis on mining and manufacturing
(for the production of capital goods) and infrastructural development (including electricity
generation and transportation).
Any increase in planned investments in India required a higher level of savings but that was not
there. Because of the low average incomes in India, the needed higher levels of savings had to be
generated mainly by restrictions on the growth of consumption expenditures.

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