Indian Economic Environment

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Companies and their suppliers, marketing intermediaries, customers, competitors, and publics all operate in a macro environment of forces and trends, increasingly global, which shape opportunities and pose threats. These forces represent “non-controllables”, which the company must monitor and to which it must respond.

The beginning of the new century brought a series of new challenges: the steep decline of the stock market, which affected savings, investment, and retirement funds; increasing unemployment; corporate scandals; and of course, the rise of terrorism. These dramatic events were accompanied by the continuation of existing trends that have already influenced the global landscape.

Within the rapidly changing global picture, the firm must monitor six major forces: demographic, economic, socio-cultural, natural, technological, and political-legal.

Economic Environment-

The available purchasing power in an economy depends on current income, prices, saving, debt, and credit availability. Marketers must pay careful attention to trends affecting purchasing power, because they can have a strong impact on business, especially for companies whose products are geared to high income and price-sensitive consumers.

India’s economy has been showing vibrancy of growth from 1991 ever since the government initiated programs to ease control on industry and commerce. In 1998-1999, the GDP of the country was estimated to be Rs. 17,410 billion, at current prices. By the year 2006-2007, the GDP was estimated to be Rs. 41,000 billion. By applying the purchasing power parity (PPP) method, India’s GDP is estimated to be about $3.319 trillion, making India the fourth largest economy in the world. GDP has also been growing at more than 7% per annum. The per capita income is also estimated to be increasing at the same rate. In addition, India has healthy foreign exchange reserves to cover the county’s imports for nearly one and a half year. Inflation has also been showing a healthy trend of less than 5%. These figures indicate that India has strong economic fundamentals that suggest a positive climate for business growth.

India was under social democratic-based policies from 1947 to 1991. The economy was characterized by extensive regulations, protectionism, public ownership, corruption and slow growth. Since 1991, continuing economic liberalization has moved the country toward a market-based economy. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. In recent years, Indian cities have continued to liberalize business regulations. By 2008, India had established itself as the world's second-fastest growing major economy.

India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP) while the industrial and agricultural sector contribute 28% and 17% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34% and industrial sector around 14%. Previously a closed economy, India's trade has grown fast. The Economic Survey for 2009-10 presented by Finance Minister Pranab Mukherjee in Parliament on Thursday has revealed India's share in world merchandise exports after remaining unchanged at 1.1 per cent between 2007 and 2008, reached 1.2 per cent in 2009 (Jan-June) mainly due to the relatively greater fall in world export growth than India. Income Distribution-

Macro economic indicators of the country provide the overall health of the economy as well as direction of economic growth. A marketer needs to understand the distribution of income to reach more meaningful conclusions about taking specific decisions. In India, we see that 77.7% of urban households in India have a monthly income of up to Rs. 3000. Urban households with a monthly income between Rs. 3001 and 6000 are estimated to be...
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