Economic Environment:

Economic Environment:

Besides people, markets require purchasing power and that depends upon current income, savings, prices, debt and credit facilities etc. The economic environment affects the demand structure of any industry or product. The following factors should always be kept in mind by the business people to determine the success of the business. Economic Environment is the most important element of business environment. There is a close relationship between a firm and the economic environment around it. Economic environment plays a significant role in business and the progress and growth of a country is dependent on economic environment. Economic environment is multidimensional in nature and includes structure of the economy. Economic conditions economic policies and the economic system are the major external factors. The economic conditions are; nature of economy, stage of economic development, economic resources, the level of income inflationary pressures distribution of national income its composition, competition, saving, investment and capital formation. Economic development affects directly the business firms. The general conditions of economic environment govern the firm’s ability to remain viable. In boom or prosperity there may be shortage of resources and in depression many firms may find it difficult to survive. In developing countries, the low income may be the reason for very low demand for a product. Some factors such as prices and income are very crucial for sale of the product. It is generally assumed that demand is income elastic. In a country where investment and income are steadily rising business prospectus are generally bright, and further investments are encouraged. During recent years we have noticed a change in the behaviour of the investors. The investors feel that developed countries are no longer attractive destinations for further investment because their growth rate is quite low when compared with the growth rates of China and India during 2002 -2008. Further these countries favour foreign capital and have created special economic zones (SEZs) where government grants special policy packages for export-oriented firms. The economic policy of the government, needless to say, has very great impact on business. Government declares industrial policy, monetary policy, fiscal policy, social welfare policy for rapid growth of industries and equitable distribution of wealth. 

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