1. BBA II Year III Semester
Business Environment
Concept, Nature and Significance ofBusiness Environment
Business organisation has to interact and transact with its environment. Hence, both the business
and environment are totally interrelated and mutually interdependent. Business environment refers
to those aspects of the surroundings business enterprise, which affect or influence its operations
and determine its effectiveness.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and
influence that surrounds and affect it”.
According to Andrews, “The environment of a company as the pattern of all external influences
that affect its life and development”.
The business environment is always changing and is uncertain. It is because of dynamism of
environment. As it is already said that the business environment is the sum of all the factors outside
the control of management of a company, the factor, which are constantly changing, and they carry
with them both opportunities and risks or uncertainties which can, make or mark the future of
business.
Business environment encompasses all those factors that affect a company’s operations and
includes customers, competitors, stakeholders, suppliers, industry trends, regulations other
government activities, social and economic factors and technological developments. Thus,
business environment refers to the external environment and includes all factors outside the firm,
which lead to opportunities and threats of a firm.
Nature of Business Environment
The nature of business environment is as follows:
1. Complex: Business environment is compound in nature. Environment consists of a number of
factors, events, conditions and influences arising from different sources which impact business
thus making the business complex.
2. Interdependence: The environment of the business is made of social, economic, legal, cultural,
technological, and political factors. These factors of the environment are inter- dependable. The
economic status of a country affects the development of technology. A rich country can make
sufficient expenditure on the research and development.
3. Dynamic: Business environment is constantly changing process. Business environment is
dynamic as it keeps on changing in terms of technological improvement, shifts in consumer
preferences or entry of new competition in the market. The various forces in the environment keep
on changing from time to time thus making business dynamic and not static.
4. Inter-relatedness: The different factors of business environment are co-related. For example,
let us suppose that there is a change in the import-export policy with the coming of a new
government. In this case, the coming of new government to power and change in the import- export
policy are political and economic changes respectively. Thus, a change in one factor affects the
other factor.
5.Impact: Business environment has both long term and short term impact. Environment therefore
has different effects on different firms in the same industry, for example, drugs.
6.Uncertainty: Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too frequently as in the case of
information technology or fashion industries.

2. 7. Relativity: It is a relative concept since it differs from country to country and region to region.
Political conditions in the USA, for example differ from those in China or Pakistan. Similarly,
demand for sarees may be fairly high in India whereas it may be almost non-existent in France.
Significance of Business Environment
Some of the direct benefits of understanding the business environment are given below:
1. Customer Focus: Environmental understanding makes the management sensitive to the
changing needs and expectations of consumers. For example: Hindustan Lever and several other
FMCG companies launched small sachets of shampoo and other products realising the wishes of
customers. This move helped the firms to increase sales.
2. Strategy Formulation: Environmental monitoring provides relevant information about the
business environment. Such information serves as the basis for strategy making. For example: ITC
realised that there is a vast scope for growth in the travel and tourism industry in India and the
government is keen to promote this industry because of its employment potential. With the help of
this knowledge ITC planned new hotels both in India and abroad.
3. Public Image: A business firm can improve its image by showing that it is sensitive to its
environment and responsive to the aspirations of public. Leading firms like Reliance Industries,
ICICI Bank and others have others have built good image by being sensitive and responsive to
environmental forces. Environmental understanding enables business to be responsive to their
environment.
4. Continuous learning: Environmental analysis serves as broad based and ongoing education for
business executives. It keeps them in touch with the changing scenario so that they are never are
caught unaware. With the help of environmental learning managers can react in an appropriate
manner and thereby increase the success of their organisations.
5. Giving Direction for Growth: The interaction with the environment leads opening up new
frontiers of growth for the business firms. It enables the business to identify the areas for growth
and expansion of their activities.
6. Change Agent: Business leaders act as agents of change. They create a drive for change at the
grass root level. In order to decide the direction and nature of change, the leaders needs to
understand the aspirations of people and other environmental forces through environmental
scanning. For example: contemporary environment requires prompt decision-making and power
to people. Therefore, business leaders are increasingly delegating authority to empower their staff
and to eliminate procedural delays.
Micro and Macro level Environment
Every business is affected by a myriad of factors. In other words, an organization as such can never
exist and operate “in a vacuum”. It is a part of a larger entity known as the business environment.
In broad terms, this environment can be divided into two categories. The first oneis the micro-
environment. This category influences the functionality of a particular business itself. The latter
one is the macro-environment which affects the operation of all existing business entities out
there.

3. The two categories may be different, but both are essential to understand in order to truly see your
business in its full context. You have to be knowledgeable about the business environment in order
to be able to track and comprehend how various factors affect your company.
What is the micro-environment?
The micro-environment is basically the environment that has a direct impact on your business. It
is related to the particular area where your company operates and can directly affect all of your
business processes. In other words, it consists of all the factors that affect particularly your
business. They have the ability to influence your daily proceedings and general performance of the
company. Still, the effect that they have is not a long-lasting one.
The micro-environment includes customers, suppliers, resellers, competitors, and the general
public.
What is the macro-environment?
The macro-environment is more general - it is the environment in the economy itself. It has an
effect on how all business groups operate, perform, make decisions, and form strategies
simultaneously. It is quite dynamic, which means that a business has to constantly track its
changes. It consists of external factors that the company itself doesn’t control but is certainly
affected by.
The factors that make up the macro-environment are economic factors, demographic forces,
technological factors, natural and physical forces, political and legal forces, and social and cultural
forces.
Micro-environment factors:
Customers
The kind of customer base that your company attracts, as well as the reasoning behind purchasing
your product, are going to highly affect the way you create marketing campaigns. Your customers
can be B2C, B2B, international, local, and so on.
Important factors related to customers are:
 Stability of demand
 Prospects of sale growth
 Relative profitability
 Intensity of competition
Suppliers
If a supplier of a particular product is the largest, or even the only one, they are certainly going to
have a big influence on how successful your business is.

4. The suppliers are extremely important factors as:
 Key link in the value delivery process
 Insurance that your business has the necessary resources
 Essential determinants in terms of price increase or decrease
Resellers
If you decide to sell your product via a third party reseller, or middlemen such as wholesalers
and retailers, then the success of your marketing is going to be highly dependent on them. If let’s
say, a certain retail seller has a strong reputation, it will pass on to your product.
As a link between you and the customer, they are important in terms of these factors:
 Promotion
 Sale
 Distribution
 Marketing
 Financial mediation
Competitors
Logically, every business that sells the same or a similar kind of product as you do is your
competition on the market. So, their sale and marketing tactics matter to you a lot. You need to
answer various questions, such as how their product and its price affects yours and how you can
make use of that in order to gain an edge over them.
The three factors that matter in this case are:
 Desire competition
 Product form competition
 Brand competition
The general public
Of course, every business organization has in its best interest to appease to the general public.
Every step that you take needs to be viewed from their perspective as well. It is extremely
important how your actions affect others because their opinion can be the one thing that either
pushes you towards success or pulls you down from the pedestal.
So, the general public is very important in terms of:
 Public opinion
 Media
 Environmental pollution

5. Macro-environment factors
Economic factors
Basically, the very environment of the economy can have an effect on two essential aspects –
your company’s levels of production and the decision-making process of your customers.
Some examples of economic factors affecting business:
 Interest rates
 Exchange rates
 Recession
 Inflation
 Taxes
 Demand / Supply
Demographic forces
Each and every chunk of the market is affected by universal demographic forces. These are age,
education level, cultural characteristics, country and region, lifestyle, and so on.
The crucial variables include:
 How income variables influence business
 Age variables that affect business
 Geographic Region Variables
 Education Level as a Variable
Technological factors
These factors are related to skills and ability that are implemented into production, as well as all
the materials and technology that a particular product requires to be made. They are essential and
can have a big impact on how well your business is running. It boils down to even the most basic
factors, such as what kind of maintenance trolleys you use in order to preserve your tools and
equipment for as long as you possibly can.
Some of the most common technological factors are:
 Automation
 Internet connectivity
 3D technology
 Speed/power of computer calculation
 Engine performance and efficiency
 Security in terms of cryptography
 Wireless charging
Natural and physical forces
Every business must also take into account the very planet and its resources. There are those that
can be renewed, such as forests and agricultural products, and those that cannot, such as coal,

6. minerals, oil, and the like. Both are strongly related to production. So, natural and physical forces
can be:
 Climate change
 Pollution
 Weather
 Availability of both non-renewable and renewable resources
 Laws that regulate the environment
 Survival of particular biological species
Political and legal forces
The market develops according to the political and legal environment in various areas. This means
that every business needs to be up to date with such forces worldwide in order to be able to make
the right decisions.
This generally includes legal factors such as:
 Copyright law
 Employment law
 Fraud law
 Discrimination law
 Health and Safety law
 Import/Export law
Social and cultural forces
Finally, it is crucial to understand that the product that you bring to the market can have a strong
impact on society. For example, your production needs to eliminate every practice that ishazardous
to society, and show that it is socially responsible. There is a wide variety of social and cultural
factors, some of them being:
 Purchasing habits
 Level of education
 Religion and beliefs
 Consciousness about health issues
 Social classes
 Structure and size of a family
 Growth rate of the population
 Emigration and immigration rates
 Life expectancy rates and age distribution
 Different lifestyles
 Both micro and macro factors have a strong influence on how successful your business is.
Every decision that you make needs to take these two environments into consideration.
Your marketing strategies have to be based on them as well, if you truly want them to be
lucrative, and retain a reputable position on the market.

7. ECONOMIC GROWTH
The term economic growth is defined as the process whereby the country’s realnational and
per capita income increases over a long period of time.
This definition ofeconomic growth consists of the following features ofeconomic growth:
 Economic Growth implies a process of increase in National Income andPer-Capita
Income. The increase in Per-Capita income is the better measure of Economic Growth
since it reflects increase in the improvement of living standards of masses.
 Economic Growth is measured by increase in real National Income andnot just the
increase in money income or the nominal national income. Inother words the increase
should bein terms ofincrease of output of goods andservices, and not due to amere increase
in the market prices of existing goods.
 Increase in Real Income should be Over a Long Period: The increase of real national
income and per-capita income should besustained over along periodof time. The short-run
seasonal or temporary increases in income should not be confused with economic growth.
 Increase in income should be based on Increase in Productive Capacity: Increase in
Income can be sustained only when this increase results from some durable increase in
productive capacity of the economy like modernization or use of new technology in
production, strengthening of infrastructure like transport network, improved electricity
generation etc.
ECONOMIC DEVELOPMENT
Economic development is defined as a sustained improvement in material well being of
society. Economic development is a wider concept than economic growth. Apart from
growth of national income, it includes changes – social, cultural, political as well as
economic which contribute to material progress. Itcontains changes in resource supplies, in
the rate of capital formation, in size andcomposition of population, in technology, skills and
efficiency, in institutional andorganizational set-up. These changes fulfill the wider objectives
of ensuring moreequitable income distribution, greater employment and poverty alleviation.
In short, economic development is a process consisting of a long chain of inter- related
changes in fundamental factors of supply and in the structure of demand, leading to a rise in
the net national product of a country in the long run.

8. Economic Growth Economic Development
Meaning Economic growth refers
to an increase in the real
output of goods and
services in the country.
Economic development implies
changes in income, savings and
investment along with
progressive changes in socio-
economic structure of country
(institutional and technological
changes).
Factors: Growth relates to a
gradual increase in one of
the components of Gross
Domestic Product:
consumption, government
spending, investment, net
exports.
Development relates to growth
of human capital, decrease in
inequality figures, and structural
changes that improve the quality
of life of the population.
Measurement: Economic Growth is
measured by quantitative
factors such as increase in
real GDP or per capita
income
The qualitative measures such as
HDI (Human Development
Index), gender- related index,
Human poverty index (HPI),
infant mortality, literacy rateetc.
are used to measure economic
development.
Effect: Economic growth
brings quantitative changes
in the economy.
Economic Development leads to
qualitative aswell as quantitative
changes in the economy.
Relevance: Economic growth reflects
the growth of national or
per capita income.
Economic development reflects
progress in the quality of life in a
country.
Factors Affecting Economic Growth
Economic Factors
1. Natural Resources
2. Capital Formation
3. Technological Progress
4. Human Resources Development
5. Population Growth

9. Non-Economic Factors:
1. Political factors
2. Social and Psychological factors
3. Education
4. Desire for Material Betterment
National Income Analysis
National income has been defined in a number of ways. National income means the total value of
goods and services produced annually in a country. In other words, the total amount of income
accruing to a country from economic activities in a year’s time is known as national income. It
includes payments made to all resources in the form of wages, interest, rent and profits.
There are a number of concepts pertaining to national income and methods of measurement relating
to them.
(A) Gross Domestic Product (GDP):
GDP is the total value of goods and services produced within the country during a year. This is
calculated at market prices and is known as GDP at market prices. Dernberg defines GDP at market
price as “the market value of the output of final goods and services produced in the domestic territory
of a country during an accounting year.”
There are three different ways to measure GDP:
Product Method, Income Method and Expenditure Method.
These three methods of calculating GDP yield the same result because National Product = National
Income = National Expenditure.
1. The Product Method:
In this method, the value of all goods and services produced in different industries during the year is
added up. This is also known as the value added method to GDP or GDP at factor cost by industry of
origin. The following items are included in India in this: agriculture and allied services; mining;
manufacturing, construction, electricity, gas and water supply; transport, communication and trade;
banking and insurance, real estates and ownership of dwellings and business services; and public

10. administration and defense and other services (or government services). In other words, it is the sum
of gross value added.
2. The Income Method:
The people of a country who produce GDP during a year receive incomes from their work. Thus GDP
by income method is the sum of all factor incomes: Wages and Salaries (compensation of employees)
+ Rent + Interest + Profit.
3. Expenditure Method:
This method focuses on goods and services produced within the country during one year.
GDP by expenditure method includes:
(1) Consumer expenditure on services and durable and non-durable goods (C),
(2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
(3) Government expenditure on final goods and services (G),
(4) Export of goods and services produced by the people of country (X),
(5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw materials,
which is used in the manufacture of export goods, is also excluded.
Thus GDP by expenditure method at market prices = C+ I + G + (X – M), where (X-M) is net export
which can be positive or negative.
B) GDP at Factor Cost:
GDP at factor cost is the sum of net value added by all producers within the country. Since the net
value added gets distributed as income to the owners of factors of production, GDP is the sum of
domestic factor incomes and fixed capital consumption (or depreciation).
Thus GDP at Factor Cost = Net value added + Depreciation.
Thus, GDP at Factor Cost = GDP at Market Price – Indirect Taxes + Subsidies.

11. (C) Net Domestic Product (NDP):
NDP is the value of net output of the economy during the year. Some of the country’s capital
equipment wears out or becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted from GDP. Thus Net
Domestic Product = GDP at Factor Cost – Depreciation.
(F) Gross National Product (GNP):
GNP is the total measure of the flow of goods and services at market value resulting from current
production during a year in a country, including net income from abroad.
GNP includes four types of final goods and services:
(1) Consumers’ goods and services to satisfy the immediate wants of the people;
(2) Gross private domestic investment in capital goods consisting of fixed capital formation,
residential construction and inventories of finished and unfinished goods;
(3) Goods and services produced by the government; and
(4) Net exports of goods and services, i.e., the difference between value of exports and imports of
goods and services, known as net income from abroad.
Income Method to GNP:
The income method to GNP consists of the remuneration paid in terms of money to the factors of
production annually in a country.
Thus GNP is the sum total of the following items:
(i) Wages and salaries:
Under this head are included all forms of wages and salaries earned through productive activities by
workers and entrepreneurs. It includes all sums received or deposited during a year by way of all types
of contributions like overtime, commission, provident fund, insurance, etc.
(ii) Rents:
Total rent includes the rents of land, shop, house, factory, etc. and the estimated rents of all such assets
as are used by the owners themselves.
(iii) Interest:

12. Under interest comes the income by way of interest received by the individual of a country from
different sources. To this is added, the estimated interest on that private capital which is invested and
not borrowed by the businessman in his personal business. But the interest received on governmental
loans has to be excluded, because it is a mere transfer of national income.
(iv) Dividends:
Dividends earned by the shareholders from companies are included in the GNP.
(v) Undistributed corporate profits:
Profits which are not distributed by companies and are retained by them are included in the GNP.
(vi) Mixed incomes:
These include profits of unincorporated business, self-employed persons and partnerships. They form
part of GNP.
(vii) Direct taxes:
Taxes levied on individuals, corporations and other businesses are included in the GNP.
(viii) Indirect taxes:
The government levies a number of indirect taxes, like excise duties and sales tax.
These taxes are included in the price of commodities. But revenue from these goes to the government
treasury and not to the factors of production. Therefore, the income due to such taxes is added to the
GNP.
(ix) Depreciation:
Every corporation makes allowance for expenditure on wearing out and depreciation of machines,
plants and other capital equipment. Since this sum also is not a part of the income received by the
factors of production, it is, therefore, also included in the GNP.
(x) Net income earned from abroad:
This is the difference between the value of exports of goods and services and the value of imports of
goods and services. If this difference is positive, it is added to the GNP and if it is negative, it is
deducted from the GNP.

13. Thus GNP according to the Income Method = Wages and Salaries + Rents + Interest + Dividends +
Undistributed Corporate Profits + Mixed Income + Direct Taxes + Indirect Taxes + Depreciation +
Net Income from abroad.
Expenditure Method to GNP:
From the expenditure view point, GNP is the sum total of expenditure incurred on goods and services
during one year in a country.
It includes the following items:
(i) Private consumption expenditure:
It includes all types of expenditure on personal consumption by the individuals of a country. It
comprises expenses on durable goods like watch, bicycle, radio, etc., expenditure on single-used
consumers’ goods like milk, bread, ghee, clothes, etc., as also the expenditure incurred on services of
all kinds like fees for school, doctor, lawyer and transport. All these are taken as final goods.
(ii) Gross domestic private investment:
Under this comes the expenditure incurred by private enterprise on new investment and on
replacement of old capital. It includes expenditure on house construction, factory- buildings, and all
types of machinery, plants and capital equipment.
In particular, the increase or decrease in inventory is added to or subtracted from it. The inventory
includes produced but unsold manufactured and semi-manufactured goods during the year and the
stocks of raw materials, which have to be accounted for in GNP. It does not take into account the
financial exchange of shares and stocks because their sale and purchase is not real investment. But
depreciation is added.
(iii) Net foreign investment:
It means the difference between exports and imports or export surplus. Every country exports to or
imports from certain foreign countries. The imported goods are not produced within the country and
hence cannot be included in national income, but the exported goods are manufactured within the
country. Therefore, the difference of value between exports (X) and imports (M), whether positive or
negative, is included in the GNP.

14. (iv) Government expenditure on goods and services:
The expenditure incurred by the government on goods and services is a part of the GNP. Central, state
or local governments spend a lot on their employees, police and army. To run the offices, the
governments have also to spend on contingencies which include paper, pen, pencil and various types
of stationery, cloth, furniture, cars, etc.
It also includes the expenditure on government enterprises. But expenditure on transfer payments is
not added, because these payments are not made in exchange for goods and services produced during
the current year.
Thus GNP according to the Expenditure Method=Private Consumption Expenditure (C) + Gross
Domestic Private Investment (I) + Net Foreign Investment (X-M) + Government Expenditure on
Goods and Services (G) = C+ I + (X-M) + G.
3. Methods of Measuring National Income:
There are four methods of measuring national income. Which method is to be used depends on the
availability of data in a country and the purpose in hand.
(1) Product Method:
According to this method, the total value of final goods and services produced in a country during a
year is calculated at market prices. To find out the GNP, the data of all productive activities, such as
agricultural products, wood received from forests, minerals received from mines, commodities
produced by industries, the contributions to production made by transport, communications, insurance
companies, lawyers, doctors, teachers, etc. are collected and assessed at market prices. Only the final
goods and services are included and the intermediary goods and services are left out.
(2) Income Method:
According to this method, the net income payments received by all citizens of a country in a particular
year are added up, i.e., net incomes that accrue to all factors of production by way of net rents, net
wages, net interest and net profits are all added together but incomes received in the form of transfer
payments are not included in it. The data pertaining to income are obtained from different sources,
for instance, from income tax department in respect of high income groups and in case of workers
from their wage bills.

15. (3) Expenditure Method:
According to this method, the total expenditure incurred by the society in a particular year is added
together and includes personal consumption expenditure, net domestic investment, government
expenditure on goods and services, and net foreign investment. This concept is based on the
assumption that national income equals national expenditure.
(4) Value Added Method:
Another method of measuring national income is the value added by industries. The difference
between the value of material outputs and inputs at each stage of production is the value added. If all
such differences are added up for all industries in the economy, we arrive at the gross domestic
product.
4. Difficulties or Limitations in Measuring National Income:
There are many conceptual and statistical problems involved in measuring national income by the
income method, product method, and expenditure method.
Owner-occupied Houses:
Self-employed Persons:
Goods meant for Self-consumption:
Trends of National Income and Per Capita Income during Different Periods of Planning
• A national income estimate measures the volume of commodities and services turned out during a
given period, without duplication. •It would be better to look into the trends of national income and
per capita income during different Five Year Plans. The following table shows such trend
During the First Plan period, the national income at constant (1980-81) prices has increased from
Rs. 41,443 crore in 1951-52 to Rs. 48,288 crore in 1955-56 showing an annual average, growth rate
of 3.6 per cent. Again the per capita income at 1980-81 prices has also increased from Rs. 1,135.4
in 1951-52 to Rs. 1,228.7 in 1955-56 showing an average growth rate of only 1.7 per cent during
the same plan period.
The Eleventh plan which started in 1st April, 2007 and continue till 31st March 2012. The draft of
the Eleventh Plan approved by NDC on 9th December, 2006 has set a target of achieving growth
rate of 9.0 per cent of GDP during the plan period. • During the Eleventh Plan period, the national

16. income at constant prices (2004-05) has increased from Rs. 3,449,970 crore in 2007-08 to Rs.
3,672,192 crore in 2008- 09 (Q), showing the annual growth of rate of 6.4 per cent.
The Twelfth Five-Year Plan of the Government of India has been decided to achieve a growth rate
of 9% but the National Development Council (NDC) on 27 December 2012 approved a growth rate
of 8% for the Twelfth Plan
With the Planning Commission dissolved, no more formal plans are made for the economy, but
Five-Year Defence Plans continue to be made. The latest would have been 2017–2022. However,
there is no Thirteenth Five-Year Plan.
Consumption, Savings and Investment
Consumption
The main hypothesis of Keynes suggested that our disposable income which can be arrived at by
deducing tax liabilities from gross income influences our level of real consumption. Further
explanation on this is
C = f (Y) where C stands for consumption and Y stands for disposable income.
Keynes also held the view that people tend to enhance their consumption level along with a rise in
their disposable income.
However, the increase in disposable income is greater than the increase in consumption. This
hypothesis can be termed as our marginal propensity to consume and indicates a
positive correlation between these two variables.
This, if our income increases by one unit, our marginal propensity to consume increases by 0.8 units.
Hence the remaining 0.2 units are used for savings.
Y = C + S where Y stands for disposable income, C stands for consumption and S stands for savings.
It is also imperative to note here that propensity to consume and desire to consume are not similar
in nature as the former means effective consumption.
Both objective and subjective factors influence our consumption function. Tax policy, interest rate,
windfall profit or loss and holding of assets are some objective functions whereas subjective ones
relate to motives of foresight, precaution, and improvement amongst individuals.

17. Savings
Savings refer to the excess of disposable income over consumption expenditure.
From a national level, the unconsumed part of the entire nation’s income comprising of all its
members can be termed as National Savings.
Total domestic savings, on the other hand, can be defined as the summation of savings of the
government, the business sector, and households.
Some of the biggest determinants of savings are
Income, as saving income ratio holds a proportionate relation with the rise in income. People also
have a tendency of saving the excess part of their income but not the entire bulk.
Distribution of income as the savings process is helped to a great extent by inequality of income
distribution. Our desire to showcase a superior standard of living in comparison to our neighbors
often steers us towards purchasing expensive goods which in turn declines the level of savings.
Psychological or subjective factors such as savings to safeguard ourselves from future insecurity
and uncertainty. The ultimate attitude of people is driven towards savings by their farsightedness.
This, in turn, boosts them up to enjoy a better standard of living both for themselves and their loved
ones.
Prevalent financial instruments and rate of interest as a higher rate motivates greater savings.
Investment
Definition of Investment is:
 Change in capital stocks or inventories pertaining to a business venture between two different
periods or
 Production of fresh capital goods such as plants and equipment.
Relation Between Savings and Investment In Classical System
According to this theory, Savings (S) gets equated with Investment (I) automatically which
otherwise alters the interest rate. If savings exceeds investment, the excess supply of funds brings
down the rate of interest.
This, in turn, reduces savings and increases investment for maintaining equilibrium.
However, this law of the market holds good when the entire amount of savings is invested.

18. Agriculture, Industry and Tertiary Sectors
Primary Sector: Agriculture Sector
The primary sector in India is the sector which is largely dependent on the availability of natural
resources in order to manufacture the goods and also to execute various processes. The services in
this sector are entirely dependant on the availability of the natural resources in order to keep the day-
to-day operations running.
As we have the clear idea of this sector is, the best example to discuss in this sector is the agriculture
sector. The other examples in this sector include fishing and forestry, but agriculture accounts for
the largest in this sector.
One of the major problem that this sector faces is the underemployment and the disguised
employment. Underemployment accounts for the workers not working to the best of their
capabilities while the latter accounts for the workers not working to their true potential.
As a solution to the problems, the state, as well as the national government, can increase the funds
for the irrigation facilities and provide loans for buying high-quality seeds and fertilizers.
Secondary Sector: Industry Sector
The economy in the sector is dependent on the natural ingredients which are used to create the
services and products offered and which at the end are used for consumption. In terms of value
added to the products and services, this sector is the best sector. The major examples that fall under
this category are transportation and manufacturing.
Both these sectors end product is the consumption by the people. This sector is responsible for the
employment of almost 14 percent of the entire workforce currently working in India. The secondary
sector also contributes to almost 28 percent of the share of GDP. This sector is the backbone of
Indian economy and there are more development and growth in the near future.
Tertiary Sector: Service Sector
This sector contributes the largest in terms of share in GDP in India. The sector is also the service
sector and is important when you consider the development of the other two sectors. Like the
previous sector, this sector also adds the value to the products. This sector is responsible for
employing 23 percentage of the workforce out of the total workforce currently working in India.
The example of this sector is all service sectors which IT services, consulting, etc. This sector
contributes to almost 59 percent of the total share of GDP. The main problem that this sector is that
the jobs which involve lower salaries do not attract much employment. And this remains the future
dilemma as India is looking for double-digit growth in the near future.