Business environment key indicator

These indicators are most valuable variable to reflect the business environment. These indicators help to understand the dynamic of business environment. These makor indicators are as follows: -

1. Gross domestic product
2. Sectoral distribution
3. Agriculture production
4. Electricity
5. Economic infrastructure
6. Money supply
7. Rate of inflation
8. Foreign trade
9. Foreign exchange reserve
10. Exchange rate

Gross domestic product

GDP helps to measure the economic output of a country. Generally GDP defined as market value of goods and services are produced by a nation. One way to calculate the GDP adding all expenditure of nation.

GDP= consumption

+investment

+government purchase

+net export

Consumption means include all durable and non-durable goods and services produced by a country.

Investment includes all investment in fixed assets and increase in inventory.

Government purchase includes all welfare funds etc.

Net export includes exports – imports.

Three methods to calculate GDP

Product method

Expenditure method

Income method

Sectoral distribution

The world economy can be divided in two sectors. The first sector is industrialized sector and second is agrarian sector.

The agrarian sector based on agriculture sector. In this we include animal husbandry, fishing and forestry.

The industrialized sector based on service sector. We include this steel, electricity, automobile etc.

Agriculture sector

In most of developing countries agriculture provides employment to nearly 70% of population. In addition, in contribute 20% GNP.

Electricity generation

It is a key input of business. Electricity produced by government sector. It controlled by central public sector and it distributed by private or government sector.

Economic infrastructure

It is a very important part of business environment. Developing countries needs a sound infrastructure. It includes transportation, electricity, working conditions, banking, insurance etc.

Money supply

It is a important instrument of business environment. The RBI classified in four categories. These are given below: -

M1 = currency with public+ demand deposit+ other deposits

M2 = m1 +post office deposit

M3 = m2 +time deposit

M4 = m3 +total deposit

Rate of inflation

Inflation means increase the prices of goods rapidly. These can be divided in two parts: -

Demand-pull inflation

The increase in prices of goods because increase demand of goods. The demand of goods increases because increase in population, increase in expansion of money, increase in income etc.

Cost-push inflation

The prices of goods increase because the cost of production is increased.

Inflation classified in different parts

Creeping inflation 2% to 5%

Walking 5% to 10%

Running 10 to 20%

Galloping 20 to 50%

Hyper up to 50%

Foreign trade

It means selling and buying of goods and services from one country to another country. Foreign trade involves the use of a number of currencies of different countries.

Foreign exchange reserve

Foreign exchange rate is strict held by deposit the foreign currency in central bank and any other authorized bank. It include special drawing rights, raise fresh borrowings in international market.

Exchange rate

The price of one unit of a currency in terms of the number of units of another currency is called foreign exchange rate. The exchange rate is also known as forex rate.

Conclusion

A proper understanding of determination and changes in these variable is essential to understand the dynamic of business environment and make strategic adjustment to the changing scenario.