Economic Environment in India

What is Economic Environment?

The economic environment relates to all the economic determinants that influence commercial and consumer compliance. ‘The term economic environment indicates to all the external economic circumstances that affect purchasing practices of customers and markets and hence influence the production of the business.’

As a component of economic reformations, the Government of India declared a new industrial system in July 1991. The extensive characteristics of this system were as follows:

  • The Government decreased the number of enterprises below mandatory licensing to six
  • Many of the businesses held for the public sector under the initial policy, were justified. The purpose of the public sector was defined only to 4 industries of vital importance
  • Disinvestment was conducted in case of many public sector industrial companies
  • Policy towards foreign funds was expanded. The percentage of foreign equity partnership was extended and in many ventures, 100 percent Foreign Direct Investment (FDI) was allowed
  • Automatic approval was now given for technology transactions with foreign firms
  • Foreign Investment Promotion Board (FIPB) was established to support and channelise foreign financing in India


The economic reforms that were presented were directed at liberalising the Indian business and trade from all redundant restrictions and limitations. They indicated the end of the licence-permit-quota raj. The liberalisation of the Indian business has taken place with respect to:

  • Eliminating licensing terms in most of the industries excluding a shortlist
  • Freedom in determining the range of marketing activities i.e., no constraints on development or consolidation of business pursuits
  • Dismissal of restraints on the transportation of commodities and services
  • Freedom in deciding the cost prices of commodities and services


The new set of economic changes intended at proffering a prominent position to the private sector in the nation-building rule and a diminished role to the public sector. This was a withdrawal of the growth policy attempted so far by Indian directors. To accomplish this, the administration redefined the role of the public sector in the New Industrial Policy of 1991, approved the policy of proposed disinvestments of the public sector and determined to the loss-making and weak industries to the Board of Industrial and Financial Reconstruction (BIFR).

Also Check: What are the objectives of Privatisation? 


Globalisation implies the combination of the different economies of the world heading towards the development of a united (closely-knitted) global marketplace. Till 1991, the Government of India had followed a course of stringently controlling imports in price and quantity terms. These laws were with respect to:

  • Licensing of imports
  • Tariff limitations
  • Quantitative constraints

The new economic reforms directed at business liberalisation were focused towards import liberalisation, export improvement through rationalisation of the tax structure and changes with respect to foreign exchange so that the nation does not remain separate from the rest of the world.

Also Read: What are the 5 Elements of the Business Environment

The above mentioned is the concept, that is elucidated in detail about the Economic Environment in India for the class 12 Commerce students. To know more, stay tuned to BYJU’S.

1 Comment

  1. standard answers

Leave a Comment

Your email address will not be published. Required fields are marked *