Page 91 - DMGT401Business Environment

Business Environment

Notes Over time, India created a large number of government institutions to meet the objective of
growth with equity. The size of the government grew substantially as it played an increasingly
larger role in the economy in such areas as investment, production, retailing, and regulation of
the private sector.

Notes In the late 1950s and 1960s, the government established public sector enterprises in
such areas as production and distribution of electricity, petroleum products, steel, coal,
and engineering goods. In the late 1960s, it nationalized the banking and insurance sectors.
To alleviate the shortages of food and other agricultural outputs, it provided modern
agricultural inputs (for example farm machinery, irrigation, high yielding varieties of
seeds, chemical fertilizers) to farmers at highly subsidized prices (World Economic
Indicators, 2001). In 1970, to increase foreign exchange earnings, it designated exports as a
priority sector for active government help and established, among other things, a duty
drawback system, programmes of assistance for market development, and 100 per cent
export-oriented entities to help producers export (Government of India, 1984). Finally,
from the late 1970s through the mid-1980s, India liberalized imports such that those not
subject to licensing as a proportion to total imports grew from five per cent in 1980-1981
to about 30 per cent in 1987-1988.

The activities of an economy are commonly divided into five components. The primary sector
includes activities directly involving the physical environment; occupations such as agriculture,
fishing, forestry, hunting, and mining. The secondary sector involves the processing of raw
materials and manufacturing. Most workers in developed countries are in the tertiary sector
where they provide services. The service sector includes wholesale and retail sales, transportation,
and finance, insurance, real estate. Those whose work involves the exchange or application of
information, knowledge, and/or capital are thought to be in the four or quaternary sector.
Finally the expansion of the knowledge economy has necessitated the term quinary sector to
refer to higher order, complex, and specialist tasks of control, production and management.
As a country goes through industrialization or economic development it is possible to see a
marked shift in the percentage of the labor force involved in the each of the five sectors. Non
industrial states have most of their workers involved in the primary sector. When industrialization
begins there is great growth in the secondary sector and the percent of workers involved in
primary production decreases. With continued growth in economic activity the labor force
shifts toward the third, fourth, and fifth sectors.

3.5 Inflation

Although an overall increase in price is often referred to as inflation, in reality it means a
continuous rise in prices, accompanied by a decrease in the purchasing power of the currency.
Inflation is measured by taking a 'basket' of goods, and comparing the prices at two intervals,
and adjusting for changes in the intrinsic basket. Thus, there are different measurements of
inflation, depending on the basket of goods selected. The most common measures are of consumer
inflation, producer inflation and GDP deflators, or price indices. The last measures inflation in
the entire economy. Thus, if the general price was say, 100 in 2000 and 110 in 2001 then there is
an inflation rate of 10%. Hence it can be said that in an inflationary situation the purchasing
power of money goes down.

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