Economic Environment

Economic Environment Defined

The economic environment consists of external factors in a business market and the broader economy that can influence a business. You can divide the economic environment into the microeconomic environment, which affects business decision making - such as individual actions of firms and consumers - and the macroeconomic environment, which affects an entire economy and all of its participants. Many economic factors act as external constraints on your business, which means that you have little, if any, control over them.

Macroeconomic influences are broad economic factors that either directly or indirectly affect the entire economy and all of its participants. These factors include such things as: Interest rates, Taxes, Inflation, Currency Exchange Rates, Consumer Discretionary Income, Savings rates, Consumer Confidence Levels, Unemployment Rate, Recession, etc.

Unlike macroeconomic factors, microeconomic factors are far less broad in scope and do not necessarily affect the entire economy as a whole. Microeconomic factors influencing a business include: Market size, Demand, Supply, Competitors, Suppliers, Distribution chain etc.

Element of Economic Environment

It has mainly five main components

1.          Economic Conditions

Economic policies of a business unit are largely affected by the economic condition of an economy. This keeps on changing over time in line with the economic and business cycle, as an economy goes through expansion and contraction. A country’s economic conditions are influenced by numerous macro economic and micro economic factors, including monetary and fiscal policy, unemployment levels, levels of current account and budget surpluses or deficits, GDP growth rate, inflation rates, exchange rates, the state of the global economy and so on.

Any improvement in the economic conditions such as standard of living, purchasing power of public, demand and supply, distribution of income etc. largely affects the size of the market.

Business cycle is an another important economic condition that has five different stages viz

1.      Prosperity  2. Boom  3. Decline  4. Depression  5. Recovery

                  

Different Stage of Business Cycle

2.  Economic System

The way that each individual lives in a society is based on how the country handles problems and questions involving their economy. Each country operates under some economic system, which differ significantly and based on utilization of their resources for the purpose of satisfying the needs and wants of people. The central problem of and economic system is the allocation of resources.

According to WW Loucks, “An economic system consists of those institutions, which is given nation or group of nations has chosen or accepted as the means through which their resources are utilized for the satisfaction of human wants.” To a great extent economic system of a country determines its economic environment, in which the organization has to survive. In fact, business has no choice, but to adjust itself within the framework of given economic system.

Types of Economic System

Market Economy/Capitalism

In a capitalist economic system, the means of production are owned and operated by private individuals whose main object is to maximize profits. Free enterprise, competition, and private ownership of property are the important features of capitalist system. Capitalism is also known as Free enterprise economy or free market economy.

Definition of Capitalism

In the words of Prof. R.T. Bye capitalism is that “system of economic organization in which free enterprise, competition and private ownership of property generally prevail”. According to G.D.H. Cole, “capitalism is a system of production for profit under which Instruments and materials of production are privately owned, the work is done mainly by hired labor, the product belonging to the capitalist owner or owners”.

Ten Important characteristics of Capitalism

The following are the important characteristics of capitalism.

i. Free Enterprise Economy: Capitalism is also called as free enterprise economy. This is because under capitalist system, individuals and private firms have the right to own and use property. They have the right to earn, save and spend incomes also. They are allowed to obtain resources, to organize production and to sell the products in any manner they like and to anyone. Here, there will not be Government or any other restrictions on the freedom and ability of the private individuals to carry out any business. Hence there is full freedom of enterprise regarding choice of work, occupation and enterprise.

ii. Private Ownership: Under capitalist economy, the factors of production like labor, land, capital and organization are privately owned. Private property is protected, controlled and enforced by law. Individuals have the right to own property and also free to use it as they like.

iii. Freedom to Choose Occupation: In a capitalist economy, a person is free to select any occupation. This freedom of choice enables the individuals to enter the field in which they have knowledge and purchase the property, which yields maximum profit. This type of freedom enables the businessmen to earn profit from their business. More resources flow into those areas where yield is more.

iv. Market Mechanism: The market mechanism is the most important characteristic feature of capitalist economy. It is also called as price mechanism. Under capitalist economy, profit, which is related with market mechanism, guides the allocation of resources. Under this system the whole economic system moves in and around the market mechanism. This system suffers from lack of proper planning for distribution of economic resources and co-ordination between production and consumption. Price mechanism determines the level of consumption, production and distribution. It is acting as the regulating mechanism in capitalist society.

v. Consumers’ Sovereignty: Under capitalist economy. consumers have complete freedom to choose what to purchase. Consumer is the king of the market under capitalism. Manufacturers consider consumers’ demand, taste, preference etc. while producing goods.

vi. Freedom to Save and Spend: Under capitalism, it is also the feature that consumer has liberty to dispose of his personal income in any way he likes. At a particular time, he may spend even more than what he earns. He may save his income and can give loan to anyone.

vii. Competition among Sellers: Competition among sellers is another feature of capitalist system. The competition among producers makes them to make best use of factors of production and produce goods at minimum cost. They try to excel others. Therefore, in a free market economy competition is considered as an essential feature to protect the consumers, and to maintain a flexible price system.

viii. Freedom to enter into Contracts: Under capitalist economy, people are free to enter into contracts. Every person is free to sell his goods or render services to any one he likes.

ix. Inheritance: The right to give or acquire property in inheritance is allowed in capitalism.

x. No Central Plan: Under the capitalist economy there is no central plan to guide and control the activities of various business concerns. It is the market forces, which influence the resource allocation, investment decisions etc. and not the Government under the capitalist economy.

Merits of Capitalism

The following merits or advantages are attributed to capitalism.

i. Encourages production: Capitalism enables the economy to reach a high level of production, as production is guided by profit. The wealth of the community would increase. It is said that the standard of living of people had increased remarkably in western countries due to capitalistic system.

ii. Best resource utilization: Best utilization of resources is possible only in capitalism. There will be no wastage of scarce resources. This is because of the working of the system on profit and loss basis. Due to self-interest, the producers will use minimum resource for producing maximum goods in order to get good profit.

iii. Availability of goods at cheaper price: Due to free competition, the consumers will get the goods at the cheapest price. They also get the goods they want. Goods will be produced according to the wishes of the consumer. The consumer will be a king in capitalism.

iv. Stimulates invention: Competition in production stimulates invention. This promotes development and progress in the economy.

v. Simple and Automatic: This system is simple and automatic in its working. The price mechanism adjusts production and consumption. The utilization of resources is done without any external direction.

Demerits or Defects of Capitalism

The following are some of the major disadvantage or defects of capitalism

i. Inequality in the Society: The main defect of capitalism is its gross inequality in the society. Private property, profit motive and inheritance of property have created a separate class of people called capitalists who are wealthy and rich. As they own the factors of production, they become richer and richer and they exploit the poorer classes.

Though the capitalistic system affords equal opportunity for all, this will be only in theory. In practice, only the richer class will have more opportunities. Further, to become rich only by means of hard work is very rare. Capitalistic system will make a big gap between the rich and the poor. The inequalities of income and wealth is the worst feature of capitalism.

ii. Non-availability of essential commodity for poor: Because of inequalities, only the rich can demand the commodities and services and that too luxury commodities. Hence, the producers will produce only for the richer class for profit and essential commodities needed for the poorer classes will not be produced. The consumer will not be a king. Only a rich man will be a king in capitalism.

iii. Waste of resources: The competition in the economy will lead to wastage of resources. Advertisement by competing firms will be a wastage of resource. Different firms will be producing the same basic commodity with product differentiation. This will result in unnecessary transport of goods from one place to another (Example: Toilet soaps, Toothpastes, Silk Sarees, etc.).

iv. Monopoly in competition: Competition in the long run will eliminate inefficient producers and finally only a few producers will be producing. These producers (firms) will combine and production will be done as monopoly. In capitalism, there will be many monopolistic firms exploiting the consumers and making huge profit. The benefits of competition will be lost. When there is monopoly, there is no freedom of choice.

v. Economic Instability: Another bad feature of capitalism is its economic instability. The competitive system will result in periodic cycles of depression and prosperity called Trade Cycles. During the period of depression, there will be mass unemployment and the poorer classes and the working classes will be suffering. The root-cause for this trade cycle is the unplanned nature of the system and the failure of price mechanism. In the period of depression, the governments have to come to the rescue of the economy.

vi. Frequent labour unrest: In capitalism, there will be poverty in the midst of plenty. There will be no security for labour and the poorer classes. There will be frequent labour unrest. In this economy, only the fittest will survive.

Modern Capitalism

The features, merits and defects studied above are related to pure capitalism. In modern days, particularly after the Second World War, no country has adopted the free capitalism. Considering some of the defects of capitalism, the governments of modern days have controlled to some extent the working of the capitalistic system.

In order to reduce the inequalities of income, unemployment, monopolistic tendencies and labour unrest, the governments of modern capitalism have introduced many measures and laws to work the system smoothly.

These measures are: a. Anti-monopoly legislation; b. Ceiling on private property; c. Regulation of production of essential commodities; d. Minimum Wages Act; e. Social security Acts to protect the interest of labour; f.  Payment of compulsory bonus; g. Laws relating to trade and commerce and h. Credit control operations, etc.

Modern capitalism may be called controlled capitalism.

Command Economy/ Socialism

Socialism is also known as the Communist Economic System or Centrally Planned Economy. It is an alternative to capitalism.

Definition of Socialism

According to Hicks, socialism is “an economic system in which the means of production are owned and operated by the state for the maximization of social welfare”. Here property and the means of production are owned, controlled and managed by the state. The Government is authorized to control not only production and distribution, but also consumption.

All economic activities come under the state control in Socialism. Private property does not exist. Every individual has to work to the best of his ability, and the Government takes the responsibility for fulfilling his needs.

In a socialistic system, the resources (factors of production) are owned by the State. The production and distribution of goods will be done for the welfare of the people and not for the profit of the individuals.

In a socialistic economy, private property will not be allowed and private enterprise will be very little. All factories and firms will be nationalized and production will be done in the public sector. This is just the opposite of capitalism.

This is only a socialism of the general type. There are different forms of socialism. The extreme form of socialism is communism. Karl Mark is the father of this type of socialism.

Features of Socialism

The main features of socialism are as under

i. State ownership: All the factors of production are owned by the State. The government or the community owns the land and factories. There is no private sector.

ii. Production and distribution by the State: State produces all goods and services in government factories and farms. It undertakes the distribution of goods to the people by itself.

iii. Central Planning and control: There will be a planning authority in Socialism. This authority will decide what to produce, how to produce and for whom to produce. The planning Authority prepares the national plan for utilizing the resources of the economy. Production and distribution will be done accordingly. The price mechanism will be suppressed.

iii. Controlled production and consumption: Production of essential commodities will be done first. Production is done not for profit, but for social use. Even if there is any profit, it will go to the State. Mass consumption will not be allowed. Each will be given according to his need.

v. Social Security: The State provides all social security measures such as unemployment benefit, health insurance. etc.

vi. Reduction of inequalities: Socialism attempts to reduce the difference between the rich and the peer. It aims at a classless society and eliminates class struggle by giving equal opportunity to work.

In a nutshell, the features of socialism can be listed as below

·    No private property.

·    Property and means of production are owned and controlled by the State i.e. State ownership.

·    Classless society.

·    Laborers are supreme and individuals receive no surplus value.

·    Each individual has to work to the best of his ability.

·    Assurance by the state that it would fulfill the needs of individuals.

·    Full employment.

·    Equality of opportunity to rise in life.

·    Social welfare motive.

·    Economic planning.

Merits or Advantages of Socialism

The following are the major merits of socialism:

i. Optimum Utilization of Resources: In Socialism, the resources are owned and controlled by the state in a socialist economy. The central planning authority allocates the resources in the best possible manner. There is no self-interest of private individuals and so no profit motive.

What to produce and how much to produce are decided according to what are really useful to the people. Hence no wastage and duplication take place is socialism.

In short, the resources can be utilized well due to central planning, absence of private property, absence of profit motive and production for social use.

ii. Equal Opportunity to all: All people get income for the work done by them in the form of salary or wage. Wage structure is so designed that there are no wide inequalities in it. There is equal opportunity for all under this system.

iii. Rapid Economic Development: Economic planning is closely associated with socialism. Planning ensures rapid economic development along desired lines.

iv. Absence of Trade Cycles: In socialist economy, central planning authority maintains the balance between the forces of demand and supply. Thus, there is no threat of price fluctuations and trade cycles.

v. Absence of Exploitation: As already stated socialist economy does not have two classes of haves and have-nots. Hence, there are no exploitation. Everybody gets his due share in the national product.

vi. Full Employment: Central planning authority gives boost to employment on behalf of the state. So it eliminates unemployment. As the government directs production and distribution, there is no possibility of depression and unemployment as in capitalism.

vii. Wastage avoided: The planning authority decides everything after careful calculations of the need of the society. Production is done under the control of the State. So, there is no scope for wastage of resources by advertisement, transport, competition, etc.

viii. Economic equality: The greatest merit of socialism is its economic equality. It does not recognize private property. It does not allow anyone to accumulate wealth. So, there is no scope for becoming rich. There will be economic equality in society. The struggle of the poor against the exploitation of the rich will be absent in socialism.

ix. Maximum Welfare: By reducing inequalities in society by making just distribution of goods, by giving employment for all and by protecting all socially, socialistic system can promote greater welfare to the people.

Demerits or disadvantages of Socialism

The following are some of the demerits of socialism.

i. Concentration of Economic and Political Powers in the State: In socialistic economy, all economic and political power gets concentrated in the state. This makes the state autocratic and it starts to make undue interference in the daily life of the people. This creates dissatisfaction among the people of the country.

ii. Lack of initiative on the Part of People: Under socialism, people are not offered incentive for greater work, efficiency and enterprise. They always receive the wage and salaries fixed by the Government. So they lack initiative.

iii. Reduction of overall Productivity: In socialism, Government servants and bureaucrats manage the economic affairs. People are more interested in their salaries rather than the productivity. It reduces the overall productivity in the economy.

iv. Absence of Consumer Sovereignty: Under socialism, wants of consumers are not generally considered while producing goods. They have to consume only those goods decided by the planning authorities. Goods are distributed to people through Rationing system which is against the consumers’ freedom.

v. No Occupational Freedom: Under socialist economy, people do not have occupational freedom. They have to take up the employment decided by the Government. There is no freedom for workers to choose their occupation. Human labour will be considered just as any other resource. Those who do not work shall not eat. Those who do not obey, shall not eat.

vi. Bureaucracy and Red-tapism: Under socialism, bureaucracy and red-tapism are present in full swing. It deters quick and timely decision.

vii. Reduction in efficiency of State enterprise: Everything is done by government officials in socialism. They may be dull and slow moving with little efficiency. Their salaries do not, depend on the income of the enterprise. So, the state enterprise will not be efficient. There will be shortage in production, due to red-tape and lethargy of officials.

viii. Wastage of resource: Wastage of resources is possible as the factors are owned by the State itself. As there is no price for resources, there may be wrong allocations and wastage of resources.

ix. Administrative burden: The burden of administration will be very heavy in socialistic economy because the government interferes in every activity of the people.

x. Loss of liberty: In socialism, there is loss of liberty. It takes away the freedom of the people. There is no freedom for consumers to choose the commodities.

Due to the inherent defects the socialism gradually resulted in the downfall. Socialist countries like Russia and China also diluted it considerably and started giving greater scope to private enterprise and incorporated some of the good features of capitalism. It can be said that scientific socialism does not exist anywhere in the world now.

Mixed economy

Mixed economy is the combination of capitalism and socialism. Under the mixed economy, the advantages of both capitalism and socialism are incorporated and at the same time their evils are avoided.

Under mixed economy, both the private and the public sectors function side by side. The Government directs economic activity towards certain socially important areas of the economy and the balance is subject to the operation of the price mechanism.

The public and private sectors work in a co-operative manner to attain the social objectives under a common economic plan.

The private sector constitutes an important part of the mixed economy and considered as an important instrument of economic growth. India is regarded as the best example of a mixed economy in the world.

Characteristics of Mixed Economy

The following are the main characteristics of mixed economy:

i. Co-existence of the Private and Public Sectors: Co-existence of the private and public sectors is the outstanding feature of mixed economy. In mixed economy, both public sector as well as private sector industries will be functioning. Certain industries will be in the public sector and certain industries in the private sector. Private individuals and firms own private sector industries. Profit will be the primary motive of private sector industries. In public sector, industries are owned and managed by the Government. Public industries will also have profit motive but that too for the promotion of social welfare.

ii. Existence of Joint Sector: Joint sector is one where both Government and private individuals establish an organization jointly by contributing the necessary capital.

iii. Regulation of Private Sector: Under mixed economy, Government exercises strict control and regulation over private sector industries.

iv. Planned Economy: The entire economic structure is subject to the planning of the Government. Mixed economy is a planned economy. The planning commission decides the objectives, targets and allocation of resources etc.

v. Private Property: Under mixed economy, private firms and individuals have right to own and use property.

vi. Provision of Social Security: Under mixed economy, Government takes steps to provide social security.

vii. Motive of Business Concerns: The motive of the business concerns is profit but coupled with the objective of social welfare.

viii. Reduction of Inequalities of Income and Wealth: The Government takes steps to reduce inequalities of income and wealth.

ix. Complete Economic Freedom: There is complete economic freedom in mixed economy. Hence, the consumer is free to buy any commodity they like.

Advantages of Mixed Economy

The important advantages of mixed economy are as follows:

i. Efficiency: There will be competition between public and private industries, which will result in greater efficiency and production in a mixed economy.

ii. Reduced inequality: The profit of public sector industries goes to the Government and as a result inequalities of income will be reduced in mixed economy.

iii. Systematic plan: In a mixed economy, economic activities are carried out as per plan. The entire economic system is subject to systematic planning of the Government.

iv. Economic Stability: The economic activities take place in a planned manner. So there will be economic stability in mixed economy.

v. Consumer sovereignty: Goods are produced as per the wishes of the consumers, which results in consumer’s sovereignty in a mixed economy.

vi. Freedom: In mixed economy, freedom of enterprise and profit motive are the important features. Further there is competition between public and private sectors. These factors increase efficiency, initiative, innovation and productivity.

vii. Promotion of social welfare: Mixed economic system gives importance to the promotion of social welfare. Under this system, both private and public sectors work for the welfare of people.

viii. Rights of Individual: Under mixed economy, individual rights are protected. People have freedom to buy any commodity.

Demerits of Mixed Economy

The mixed economy also suffers from various defects, which are as under:

i. Unhealthy Competition: There is unhealthy competition between private and public sectors in a mixed economy.

ii. No freedom to private sector: There is no freedom to private sector in mixed economy. This is because Government regulates private industries through its various regulations and licensing.

iii. Inefficient public sector: Inefficiency of public sector is another demerits of mixed economy. They may suffer heavy losses. People will have to bear these losses. The objective and targets of economic planning also may not be achieved in a mixed economy.

iv. Unemployment and Uncertainties: On account of capital scarcity, Government regulation and control, the growth of private sector may be less than what is fixed in plan. It may lead to unemployment and uncertainties in a mixed economy.

v. Threat of Nationalization: There is always a threat of nationalization in the mixed economic system because of which the private sector does not work actively.

In spite of the defects in the mixed economy, it has become popular in some countries. India is one of the important countries, which adopted mixed economy.

3.  Economic policies

Economic Policies of a government play a significant role in determining the economic environment role in determining the economic environment of business in a country. Economic policies may or may not have favorable effect on a business unit.

The government may grant subsidies to one business or decrease the rates of excise or custom duty or the government may increase the rates of custom duty and excise duty, tax rates for another business. All the business enterprises frame their policies keeping in view the prevailing economic policies.

Important economic policies are

i.    Monetary or Credit Policy: Monetary policy refers to the policy regarding money supply and bank credit in the country and in turn influences the savings, investment and consumer expenditure in the economy. Changes in monetary policy can be made at any time during the year. It is formulated and announced by the Central Bank of the country.

According to C Rangarajan, Monetary policy, “is an arm of macroeconomic policy and as such, its role and importance is determined in any economy by the overall policy framework and the various instruments available for implementing policy.” Monetary policy may also be used to influence the exchange rate of the country’s currency.

Objectives of India’s Monetary Policy

a.          To Control Inflation: Price stability is a major objective of monetary policy. A high degree of inflation has adverse effects on the economy. It raises the cost of living, makes exports costlier, reduces incentive to save and encourages non-productive investment. Reserve Bank of India take reasonable step to control the rate at which cost of bank loan is increased thus, reduce money supply and credit which tend to reduce price rise and by increasing Statutory Liquid Ratio (SLR) availability of loanable fund with Commercial Banks reduces.

b.  To Peace the Economic Growth: Accelerating economic growth so as to raise national income is another objective of monetary policy.

c.   To provide Exchange Rate Stability: The policy of floating exchange rate and globalization of the Indian economy have made the exchange rate volatile. The Reserve Bank of India makes appropriate change in monetary policy to ensure foreign exchange rate stability.

ii. Fiscal or Budgetary Policy: Fiscal policy concerns itself with the aggregate effect of government expenditure and taxation on income, production and employment, deficit financing and management of public debts in an economy. It may be termed as budgetary policy. It is related with the income and expenditure of a country. Fiscal policy works as an instrument in economic and social growth of a country. It is framed by the government of a country.

Fiscal policy and monetary policy are closely interrelated and therefore should be pursued in coordination with each other. Fiscal policy brings about changes in money supply through budgetary deficit. An excessive fiscal deficit requires control of inflation through monetary policy. On the other hand, a fiscal policy of vary low deficit enables a liberal monetary policy.

Objective of Fiscal Policy

·         To promote exports and imports

·         To mobilise the available resources

·         To ensure equitable distribution of income and wealth

·         To bring price stability and control of inflation

·         To generate employment

·         To reduce the deficit in the balance of payment

·         To increase national income

·         To enhance foreign exchange earnings

ii. Foreign Trade Policy: Foreign trade policy refers to the policy concerning exports and imports, Therefore, it is also known an Export-Import Policy. The trade policy significantly affects the different business units differently. e.g., if restrictive import policy has been adopted by the government, then it will prevent the domestic business units from foreign companies and if the liberal import policy has been adopted by the government then it will affect the domestic products in other way.

Objective of Foreign Trade Policy

a.          The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater       economic activity, the foreign trade policy of Indian is based on two major objective.

b.          To double the percentage share of global merchandise trade within the next five years.

c.           To act as an effective instrument of economic growth by giving a trust to employment generation.

iii. Foreign Investment Policy: The policy related to the investment by the foreigners in a country is known as foreign investment policy. If the government has adopted liberal investment policy, then it will lead to more inflow of foreign capital in the country which ultimately results in more industrialization and growth in the country. This will increase domestic competition and would put many domestic firms, which are shielded from foreign competition, in to problem. On the other hand, it will promote many domestic firms by permitting global sourcing of capital and technology, thus quantity and quality of such industry will increasing.

iv. Industrial Policy: Industrial policy of a country promotes and regulates the industrialization in the country. It is framed by government. This policy can even define the scope and role of different sectors like private, public, joint and cooperative or large, medium, small and tiny.

It may influence the location of industrial undertaking, choice of technology, scale of operation, product mix and so on. The government from time to time issues principles and guideline under the industrial policy of the country.

Objectives of the Industrial Policy

The major objectives of industrial policy are as under

a)      Maintenance of a sustained grown in productivity and gainful employment.

b)      Rectification of the distortions or weakness that may have except in the industrial structure as has developed over the period.

c)      Consolidation of the strength build up during the period of economic planning and to build on the gains already made.

d)      Attaining of international competitiveness

4. International Economic Environment

With the increase in the volume of foreign trade, investment and with the increasing scope of the World Trade Organisation, IMF, World Bank the role of international economic environment has increased. If any business unit is indulged in international trade, then it is governed not only by economic environment of the country of which it belongs, but also by the economic environment of the country to which it is importing or exporting its goods.

Economic Legislation

Besides these, Government has also framed certain legislations, which regulate and control the business.It includes

·         Industrial Dispute Act, 1947

·         Factories Act, 1948

·         Companies Act, 1956

·         Consumer Protection Act, 1986

·         Depositories Act, 1996

·         Foreign Exchange Management Act, 1999

·         Competition Act, 2002

·         Limited Liability Partnership Act, 2008

5. Economic Planning: Economic planning may be defined as a continuous process which involves decisions or choices pertaining to alternative way of utilizing the available resources for achieving particular goals during a specified time period in the future. Economic planning in a country is undertaken Central Authority (e.g., Planning Commission), which is entrusted with the powers of formulating implementing and reviewing the national plan.

Objective of Planning in India           

1.      To improve in the standard of living of the people.

2.      To enhance national income and per capital income.

3.      To promote industrialization.

4.      To achieve full employment.

5.      To remove poverty.

6.      To reduce disparities in income and wealth

7.      To make self-sufficient in food and other basic raw material.

12th Plan of Indian Economy

We are in a 12th Five Year Plan. Right now, there are two sets of objective for planning.

i)        Short term planning and

ii)      Long-term Planning

Following are the vision of the five year plan of India.

i)        Accelerate GDP Growth rate from 8% to 10% and then maintaining at 12% in the 12th plan.

ii)       To double the per capita income by 2016-17

iii)    Increase agriculture GDP growth rate to 4% to ensure a broader spread of benefit.

iv)     To create two million new work opportunity.

v)      Reduce educated unemployment to below 5%.

vi)     Reduce the head count ratio of consumption poverty by 10%

 Objective of Five year plan in India

A fire year plan is a deliberate attempt to spell out how the resources should be put to use. It has some general Specific goals, which are to be achieved within a specific period of time. The general goal of a plan are growth, modernization, full employment, self-reliance and equity. But all plans may not give equal importance to all of them.

Nature of Unemployment in India

When a person is failed to get any job and unable to found the means of livelihood, we call him an unemployment. As unemployment is a universal problem and is found in every country more or less, therefore, it is categorized into a number of types.

The chief among them are stated blow

i)           Structural unemployment: This type of unemployment occurs due to the changes incorporated in the structure of an industry, technological changes, competition and government policy. Under this unemployed workers may lack the skills needed for the jobs or they may not live in the part of the country or world, where the jobs are available. It is considered to be one of the permanent type of unemployment.

ii)         Disguised Unemployment: Under this type of unemployment people seems to be employed, but actually they are either engaged in part-time work or working in a redundant manner, where worker productivity is essentially zero. Such types of peoples are not counted in the official unemployment statistics. An economy demonstrates disguised unemployment statistics. An economy demonstrates disguised unemployment, where productivity is low and where to many workers are filling too few jobs. This type of unemployment is found more particularly in agriculture sector.

iii)       Cyclical Unemployment: This type of unemployment occurs, when there is bust in the macro economy. i.e., when the economy is booming, cyclical unemployment declines and at the time of recession it rises. It is the result of business not having enough demand for labour to employ at those, who are looking for work and this lack of demand comes from a lack of spending and consumption in the overall economy

iv)       Seasonal Unemployment: This type of unemployment occurs due to the seasonal changes in particular industries. In agriculture we notice this type of unemployment as it is a seasonal activity, demand of labour increases at the time of sowing, harvesting, weeding and threshing.

v)         Under Unemployment: This type of unemployment refers to an employment situation, in which working people does not work according to their capacity, where the employee has  education, experience or skill beyond the requirement of the job.

vi)       Open Unemployment: In this type of unemployment peoples want to work but they have no work to do. Such employment can be seen and counted in terms of the numbers of such persons.

vii)     Voluntary unemployment: Under this type of unemployment people willingly does not want to work, the reason to this could be many such as quarrel with the employer , strikers, find himself to be underpaid , having permanent source of unearned income or he does not want to work at all.

viii)   Involuntary Unemployment: This type of unemployment occurs, when there is insufficient or non-availability of work and person is willing to work at the prevailing wage.