Learn about the Indian economy, its features, nature and the development in India.
Features of Indian Economy
- Low per capita income
- Excessive dependency on agriculture and primary producing
- High rate of population growth
- Existence of chronic unemployment and underemployment
- Poor rate of capital formation
- Inequality in distribution of income and wealth
- Low level of technology
- Underutilization of natural resources
- Lack of infrastructure
- Lower standard of living
- Poor quality of human capital
- Demographic characteristics
- Inadequate development of economic organisation
- Lack of proper banking facility
- Lack of proper transportation facility
Nature of Indian Economy
- India has a mixed economy
- Agriculture plays the key role in supporting the Indian economy
- Newly industrialized economy (good balance between agriculture and industrial sector)
- An emerging market
- A Major economy
- Federal in character
- Fast growing economy
- Fast growing service sector
- Unequal distribution of income
- Economic disparities
- Instability of price
- Lacks proper infrastructure
- Inadequate employment opportunities
- Large domestic consumption
- Rapid growth of urban areas
- Stable macroeconomy
- Excellent human capital
- Large population
- Unequal wealth distribution
- Pursues labour intensive techniques
- Technological use is less in comparison to well developed economies
- Inadequacy of entrepreneurs
India: area- 2.4%, income-1.8%, population- 17.7% (Compared to World)
Changing scenario of Indian economy
- Increase in national income
- Increase in per capita income
- Structural transformation
- Growth of basic capital goods industry
- Expansion of social capital
- Slowly changing occupational distribution of population
- Agricultural transformation
- Infrastructural revolution
- Changes in foreign trade
- Expansion of education
- Decrease in poverty
- Increase in employment
Model
- Capitalist Model :
- (Vallabhbhai Patel)
- Big industries
- Minimum state interference
- Class based society
- Socialist model :
- (JL Nehru)(choosen one)
- Big industries
- Max state intervention
- Classless (equal) society
- Gandhian Model :
- (Gandhi & his followers)
- Small & cottage industries
- Minimum state interference
- Classless (equal) society
Economic development of India
Main features of economic environment at the time of independence were
- Dominance of agricultural sector
- Almost three fourth of total population was occupied in agricultural sectors, 85% of population was living in villages
- Use of obsolete and outdated technology in production
- Lack of good public health care system
- Widespread communicable disease
After independence, in order to solve the economic problems, Government of India made some plans and policies.
Main objectives of new development plans were
- Rapid economic growth
- Rise in standard of living
- Reduce unemployment
- Decrease poverty
- Attaining self-Reliance
- Decrease regional imbalance
- Decrease inequalities of income and wealth
- Adopting mixed economy pattern by giving more importance to socialist pattern
Major crisis of 1991
- Fiscal deficit reached 7% of GDP
- Internal debt Rose to 50% of GDP
- Negative agricultural growth
- Inflation rose to 13%
- Depreciation in the value of rupee
- Fall in forex reserve
- Credit worthiness of international financial institution of our country fell
- Negative balance of payment
- India was on the verge of becoming a defaulter
- As a result, SBI & RBI sold and pledged gold in international market
Measures taken by Indian government to solve the crisis
- Reduce fiscal deficit
- Announcement of new industrial policy in July 1991
- Abolishment of industrial licensing policy
- Amendment of MRTP act
- Open entry for private sector to areas which were earlier reserved for public sector only
- Rice in foreign equity holders from 40 % to 51%
- Setting up of FIPB
- Introduction of Indian development bond scheme to get funds from abroad
- To check devaluation of rupee, a standby credit was negotiated from IMF
- Buying the gold back, which was earlier pledged
- Measures to control import and encourage export
- Abolition of export duty
- Elimination of import licence on capital goods
- Introduction of liberalised exchange rate management system
Features of Indian economy as an underdeveloped economy
- Stagnant per capita Income
- Low level of per capita income
- Low standard of living
- Unequal distribution of income and wealth
- Excessive dependence on Agriculture
- Lack of proper industrialisation
- Lack of proper banking facilities
- Less developed means of transport
- Pressure of population
- Unemployment and underemployment
- Lack of capital
- Underutilized natural resources
- Shortage of able and efficient entrepreneurs
- Outdated social institutions
- Low grade human capital
- Poor technology
- Dualistic economic structure
Regional disparity in India
It means large inequality in per capita income, literacy rate , health and education facilities, basic infrastructure availability between regions.
Causes of regional disparity
- Historical factors (more funding to specific reasons to facilitate business by Britishers) (ancient India as well)
- Geographical factors (near Port, weather, climate etc) (topography)
- Political factors (administration matters) (caste based)
- Location specific factors (City/region near the main potent area)
- Social factors (business class people versus tribal people)
- Infrastructural issues (connectivity, banking facility, power facility)
- Green revolution
- Law and order problem(hindrance)
- Failure of planning mechanism (lack of adequate and goal-oriented resources)
Problems of regional disparity
- Unplanned migration
- Social tension
- Conflict with local people
- Over utilised versus underutilized resources
- Political instability in backward areas
- Left wing extremist like problem in backward area (naxals)
- Parallel government like bodies in underdeveloped areas
- Social unrest
- Housing and water problem
- Frustration among rural youth
- State separation demand
Indicators of regional disparity
- Population growth
- State per capita income
- Infrastructure
- Disparity in industrial and agricultural development
- Population below poverty line
- Degree of urbanization
- Per capita consumption of electricity
- Employment pattern
- Socio economic disparity
- Foreign direct investment
Government measures to decrease regional disparity
- Plan 1 : (financial resource transfers)
- Planning commission
- Financial commission
- Plan 2 : (development programs)
- Agriculture, community development programme, area development
- River valley projects
- Expansion of village and small industries
- Scheme for development of backward areas
- Diffusion of industrial activity
- Plan 3 : (investments)
- Purchasing power parity
- Private investment
- Public investment
Why there exists an imbalance?
- Natural factors :
- Natural resource disparity
- Soil fertility
- Altitude difference
- Unequal topography
- Harsh climate
- Flood prone area
- earthquake prone area
- landslide prone area are least developed
- Human factors :
- Political instabilities
- Brain drain
- Investment in specific locations
- Lack of basic infrastructures
- Unequal capital formation
- Lacking in quality population
- Measures to solve regional disparity problem :
- Identification of backward areas and allocation of fund
- Need for investment in backward areas
- Good governance
- Political will
- Growth corridors
- Incentives like centre and state government incentives
- Setting up of regional boards
- Promoting new financial institutions in backward areas
- Usage of natural resources for the development of tribal areas
- Strict restriction on uses of productive agricultural lands for agricultural purpose.
Refer Economics Important Topics for more other such topics