NATURE OF INDIAN ECONOMY

What is economy?--- Activities

related to production and
distribution of goods and
services in a particular
geographic region.

Indian economy at the time of independence was

backward and traditional. Since 1951,indian
economy is on a upward move and several sectors
have thrived. Despite this the Indian economy is
underdeveloped economy. Infact we can say that
Indian economy is underdeveloped but developing
economy.

Features of an underdeveloped
economy

Predominance of agriculture
Wide spread poverty- (due to low per capita income, the
ability to save is very low and due to low rate of saving,
capital formation is very low)
Heavy population pressure
Low standard of living (family income is low i.e wages is
low- whatever they are doing, they are paid less. In course
of time their productivity is low)

Technological backwardness-(production techniques are

backward and investment in new technologies is quite low)
Large unemployment- (agriculture may not provide
employment throughout the year)
Inequalities in income distribution

If we analyze the Indian economy, we may say that it is an

underdeveloped economy because
Agriculture is the main occupation of the people of India.
Nearly 51% of population is dependent on agriculture.
In India the incidence of poverty is very high. According to
the latest available data 22% of the Indian population is
below poverty line.
Over the years, Indian population has grown at a pace of
approximately 2%. The death rate is falling, but there is no
corresponding fall in the birth rate. The dependency rate i.e.
percentage of people in non-working age is nearly 55% as
per 2012 World Bank estimates.

Indias per capita income is very low as compared to other

developed and developing countries. ( thats why the standard
of living is also quite low)
Techniques of production, especially in the agricultural sector
are still backward. Productivity in agriculture as well as in
industrial sector is low in India as compared to advanced
countries.
There are large number of unemployed people in India and the
unemployment rate has steadly been increased.

In India, the level of human well being is also quite low. As

per human development index (HDI) of UNDP, Indias
global ranking in the index is 136 among 187 countries of
2013.

India: A developing economy

In the last few decades, India is moving fast to the path
of development and is called a developing economy.
Rise in National income- Indias national income was
Rs.1,32,367 crore in 1950-51, which rose to Rs
8,279,976 crore in 2011-12 .
Rise in per capita income- Per capita income in India
was Rs. 3687 in 1950-51 and rose to Rs. 53,331 in
2010-11.

Significant change in occupational distribution of

population- ( distribution of workforce in different
occupation)
All occupations can be classified into 3 groups.
Primary sector- agricultural and related occupation i.e.
Forestry, poultry farming
Secondary sector- all manufacturing activity
Tertiary sector- Trade, Banking, Transport,
communication etc.

In 1951, 72% people were engaged in primary sector but

in 2012 it has fallen to 51.1%.
In secondary sector, 10.6% people were engaged in
1951, but in 2012, 22.4% were engaged.
In tertiary sector, 17.3% people were engaged in 1951,
but in 2012, 26.6% were engaged.
The shift in occupational structure signifies the
development in economy.

 Growing

capital base in the country- At the time of

independence, we had very few basic and capital
goods industries, but after that high priority is being
given to establish basic industries.

Development

in banking and financial sector- in 1949,

Reserve bank of India was nationalized and later in
1969 and 1980, many big banks were nationalized. As
a result, banks which earlier catered to very small
population have now reached in every nook and
corner.
Thus we can say that although India is economically
not a strong economy, but is on the road of
development.

Structural Bottlenecks
Another

major hurdle in the path towards development

are the structural bottlenecks that restrict growth in the
form of over regulation and bureaucratic red tapism.
Such rigidity in the economic environment stifles
innovation and enterprise, the basic foundations of a
strong market economy.
Example-Entrepreneurs in India have to get past at
least 70-80 regulations in order to start a business in
India.