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DOMESTIC MACRO ENVIRONMENT

Macroeconomic environment envelopes all business firms and provides them a framework within which they have to operate and adapt themselves. The environment provides national level economic conditions and circumstances affecting the level of aggregate economic activity in which individual firms desire or seek their own business opportunities.

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It is circumscribed by the economic system under which an economy functions. describes the level of prosperity indicated by the level and growth of income and wealth of the society and these variables are important for determining market potential for specific product groups. shows the variability, sometimes by

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Main dimensions of domestic macro environment

1.

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Economic system An economic system is a way in which a society is organized to decide the following 3 basic questions of any economic organization:

q.

What products should be produced and in what quantities? How should the products be produced?

q.

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For whom should the products be produced? Major economic systems: Market Economy Command economy Mixed economy Socialist market economy

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2.Growth and distribution environment

Economic

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growth refers to the process of increase in real output over a period of time(usually a year). are 3 basic measures of a countrys real output like GDP(Gross Domestic Product) NDP(Net Domestic Product) GNP(Gross National Product)

There

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The most widely used measure countrys real is Gross Domestic Product (GDP) which is the sum of 4 major components:

Personal consumption expenditure Gross private domestic investment Government expenditure on consumption and investment Net exports(exports minus imports)

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GDP gets allocated in an economy by way of wages and salaries(to labour),interest(to capital owners),rent(to land owners),profit(to entrepreneurs),indirect business taxes(to government) and depreciation(to capital consumption).

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The

second measure is Net domestic product is obtained by deducting depreciation from GDP. third measure is Gross National Product which is the total final output produced by resources owned by the residents of the country.

The

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Aggregate National

output measures help us to derive data on national income. income is obtained by deducting depreciation and indirect business taxes from GDP. is the income received by the owners and suppliers of land,labour and capital in the form of rent,wages,interest and profit.

This

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3.Macroeconomic stability
Macroeconomic

stability is one of the important conditions for the growth of business. is achieved when most of the variables affecting growth environment are stable. is manifested in the stability of the price level,exchange rate,interest rate,money supply,aggregate demand,balance of

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In

a macroeconomic framework,all of these variables are interactive and interdependant so that instability of one or few variables has the potential to upset other variables.

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4.Economic policy

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Monetary policy

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Fiscal policy

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Industrial policy
The

central objectives of an individual policy are to promote industrialization,correcting regional imbalances,enhancing competitiveness of firms,developing inter-sectoral linkages,promoting exports and import substitution. specifies the relative roles of domestic and multinational enterprise,large and small industries

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specifies licensing and registration procedures,norms of capacity expansion and value addition,regulation of industrial costs,prices,product quality and pollution and in certain cases,prescribes the norms of investment.

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Trade policy
Basic

policy of trade policy is to promote exports,regulate imports,improve terms of trade,enhance export competitiveness and create conditions of export-led growth. all countries with significant trade volumes provide an extensive institutional support system relating to various aspects of foreign trade

Almost

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Trade

policy is of utmost importance to exporters and importers as it has a major impact on transactions costs and efficiency of trade transactions. India,a five year EXIM policy(latest being 2002-07 policy) is in operation with provision for periodic fine-turning depending upon the exigency of trade conditions.

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