Critical Elements

In what follows, we intend to identify and describe a few critical elements of economic environment. These critical elements are relevant from the standpoint of both, corporate business management and national economic management in India. 

The critical elements of macro-economic environment are as follows : 

• economic system 
• nature of the economy  
• analyst of the economy 
• functioning of the economy 
• economic planning and programmes 
• economic policy statements and proposals 
• economic controls and regulations 
• economic legislation 
• economic trends and structure 
• economic problems and prospects 

An economic system defines the institutional framework of the environment. The ownership, control and management of the enterprise reveal the nature of the economic system. The role and responsibility of the private sector, public sector, joint  sector, etc. throw light on the philosophy  and practice of an economic system - capitalist, socialist or mixed. The mixed economic system operates through a combination of planning and pricing. 

The level of economic development and the structure of the economy define the physical framework of the environment. The level and composition of per capital income indicate the level of growth and development. Available natural resources, human resources and material resources of a country set a limit to its factor endowment which determines its production. The occupational distribution of labour force, the structure of national output; the composition and pattern of foreign trade, the structure of savings, investment and capital formation, the pattern of income distribution, inter-personal and inter-regional, the degree of urbanisation, all these bring out the significance of agriculture, industry and , service sector in the national economy. 

The structure of the national economy can also be discussed in terms of its physical anatomy. The national economy is, after all, a combination of the household sector, the corporate business sector, the government administration, the capital market and the ,foreign sector. This is suggested by the national  income and the social accounting approach. The order and strength of each of these sectors, therefore, also throws light on our understanding of the macro-economic environment.