Economic environment in India
The economic environment in India consists of various macro-level factors related to the means of production and distribution of wealth which have an impact on business and industry. The economic environment of business in India has been steadily changing since Independence mainly due to government policies.
Economic Environment at the time of independence
The private capital was negligible at the time of independence. So, the government took various steps to build a planned economy. Most of the major industries were initiated and controlled by the government.
After 1991
Some economic crises, like foreign exchange crisis, high government deficit and inflation necessitated some drastic measures. The government announced various policies to liberate the economy from the license-quota-raj.
License Quota Raj: Till 1991, every economic activity was strictly controlled by the government. If one had to buy a big quantity of sugar or cement, he needed to take a written permit from the concerned officer. If a company wanted to increase production of a product, it needed to take a license to do so. Even soaps and sarees were rationed and sold through the Public Distribution System.
Liberalisation, privatisation and globalisation
As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The new industrial policy was aimed at liberating the economy from various shackles. Liberalisation was aimed at removing the shackles of the licensing system. Privatization was aimed at reducing the role of the public sector and increasing private participation in manufacturing and other sectors of the economy. Globalisation was aimed at attracting foreign direct investment and imports to the country.