Define 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