Direction: Read the following text and answer the questions given below:

As the government has opened up its economy to Multinational Corporations, it has encouraged foreign companies to invest in some sectors of retailing. It has also put in place new rules and regulations for FDI (Foreign Direct Investment) in the retail sector. The FDI policy allows foreign investment through two modes. It may be either under the ‘automatic route’ or under the ‘approval route’ where prior approval of the Indian Government is required for any foreign investment in an Indian company which is carrying on retailing business in India. Moreover, the policy also talks about ‘Single brand retailing’ like Nike or ‘Multi- brand retailing’ like Walmart. The argument is that customers can afford to purchase the products of these companies as their income is rising gradually. It will increase research and innovations in the retail sector which will provide new ways of producing goods as well as increase the variety of goods in the market. This will eventually improve the quality of life.

“Customers can afford to purchase the products of these companies as their income is rising gradually.”

Identify which dimension of business environment is depicted here.

Economic environment

Economic environment is depicted in the lines “Customers can afford to purchase the products of these companies as their income is rising gradually.”

Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short and long term interest rates significantly affect the demand for product and services. A rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products. High inflation rates generally result in constraints on business enterprises as they increase the various costs of business such as the purchase of raw materials or machinery and payment of wages and salaries to employees. Some components of economic environment-
* Existing structure of the economy in terms of relative role of private and public sectors.
* The rates of growth of GNP and per capita income at current and constant prices
* Rates of saving and investment
* Volume of imports and exports of different items
* Balance of payments and changes in foreign exchange reserves
* Agricultural and industrial production trends
* Expansion of transportation and communication facilities
* Money supply in the economy
* Public debt (internal and external)
* Planned outlay in private and public sectors