Economics - Indian Economy

Indian Economy

8.1 Under Developed Economy

Countries under-equipped with capital in relation to their population and natural resources, compared with the developed countries are referred as “Underdeveloped countries

8.1.1 Features of under-developed countries are

a.     Low GNP per capita and widespread poverty

b.   Non-availability of capital

c.   Rapid population growth and high dependency burdens.

d.   Low productivity

e.   High levels of unemployment and underemployment

f.    Lower level of human well-being

g.   High level of income inequality

h.   High level of poverty

i.    Nominal participation in foreign trade

j.    Economic dependence on other country.

8.1.2 India as under developed economy

India is an underdeveloped economy, which is moving towards developments. Under development is the most serious economic problem of India. [Q:51] India is often called Rich country inhabited by poor people. [Q:53] The salient characteristics of Indian economy include:

(i)        Low per capita income: Per capital income level is much low in India in comparison to other developed countries. According to World Development Report (2007) the per capita income in India is about 1/60 of US level of per capita income.

(ii)       Unequal income distribution: High degree of disparity in income /wealth distribution is found in India. Through the motive of establishing a socialistic society was envisaged since Second Five years plan, but it has not yet attained. As per the report of NSS, 30% of rural population possesses only 5% of all the rural assets while, 8% top households possess 46% of total rural assets.

(iii)      Security of capital: Savings are low in India due to low national income and high consumption expenditure. Gross domestic savings which were 23.1% of GDP in 1990-91, enhanced to 29.1% in 2005-05.

(iv)      Low industrialization: India lacks in large industrialization based on modern and advanced technology, failing to accelerate the pace of development in the country.

(v)       Existence of traditional society: The Indian traditional society is still facing a number of social problems like traditions and customs, malpractices, superstitious etc. which badly affect the process of economic development. The stigma and social obligations cause unproductive expenditure of the masses that hardly leave any savings for capital formation.

(vi)      High rate of poverty: In India, the poverty is very high. One third of the world’s poor live in India. According to the National Sample Survey Organization (NSSO) survey in 2004-05, nearly 22% of the population is below poverty line.

(vii)      High rate of population growth: Indian population has grown at a fast rate of more than 2%. The death rate is falling without any corresponding fall in the birth rate. The dependency rate i.e. Non-working age (below 15 and above 64 years of age) group ratio is nearly 40%. So, working group ratio is nearly 60%.

Dependency rate is above 33% in developed countries

(viii)     High Unemployment: The incidence of unemployment in India is quite high. There are a large number of unemployed people in India.

In tenth plan (2001-02) 35 million people were unemployed. Employment increased at a very slow pace to 2.7% p.a. during 2000-02, from 1.07% during 1994-2000.

On tenth plan, India has to generate jobs for 70.14 million persons/year.

8.2 India as developing economy

Economic growth as goal of development refers to development in the quality of life through better education, higher standards of health and nutrition, less poverty a cleaner environment, more equality of opportunity, and rich cultural life.

Indications of India as a developing economy

(i)     Increase in National Income: India’s national income rose from 3.4% p.a. to 5.5% p.a. during the last 2 decades.

(ii)    Rise in employment opportunity: Employment in the country rose at the rate of 2.07% p.a. during 2000-02 as compared to 1.07% in 1994-2000.

(iii)   Rise in Per Capital Income: Per capita income in India has increased by more than 4.5 times during the planning period. Average per capita income has increased at a rate of 2.2% p.a.

(iv)   Increasing capital base of the economy: In the Second Plan, a high priority was given to establishing basic and capital goods industries, including iron and steel, heavy chemicals, heavy electrical equipment, petroleum products etc.

(v)    Development in the banking and financial sector: After the nationalization of 14 banks in 1969 and 6 banks in 1980, small-scale industries and other important sectors have been getting bank’s funds on a priority basis, and at confessional rates of interest from NABARD and RRBs.

 8.3 India as a Mixed Economy

(i)    In India, almost the whole of agriculture, and many of industrial sectors, are in the private sector.

(ii)   Prices are ascertained by market mechanism of demand and supply, government restriction has reduced considerably.

(iii) Private sector and public sector exist side by side.

(iv)  Economic planning: The Planning Commission lays down overall targets for the public sector and private sector. The government tries to achieve the objective of economic welfare by providing incentives to these sectors. These characteristics indicate that Indian Economy is a mixed economy.

8.4 Gini Index

Gini index is used for the measurement of equality or inequality of income and wealth.

Gini index should lie between 0 and 1.

Gini index is zero implies perfect equality.