Nature of Indian economy UPSC




Features of an Underdeveloped Economy :Generally an economy is said to be underdeveloped if it has the following characteristics:

Agriculture is the main occupation of the people. Nearly 60 to 80 per cent of the population is engaged in agriculture and its related activities.

Poverty is widespread. The ability to save of people is very low. Due to the low rate of saving, the rate of capital formation/investment is very low.

 Population grows at a high rate (about 2 percent per annum) and the burden of dependent population is also high

The standard of living of people is generally low and the productivity of labour is also considerably low.

The production techniques are backward. Investment in research and development is quite low.

The incidence of unemployment and underemployment is quite high. The level of human well-being measured in terms of real income, health and education is generally low Income inequalities are widespread

Apart from the above features, such economies have Two participation in foreign trade their social life is traditional, people are generally orthodox in their outlook and they hardly make any changes in their socio-economic relations.

India as an underdeveloped economy.


India’s case: If we analyze Indian economy we may say that it is an underdeveloped economy. This is because it has most of the characteristics of an underdeveloped economy.

(I) Predominance of agriculture: Agriculture is the main occupation of the people in India. At the time of Independence nearly 72 per cent of the population was dependent on agriculture. Nearly 52 percent (2008-09) population was dependent on agriculture. Even today about 49% of working population is engaged in agriculture (2013-14). In 2001 there were 127 million cultivators which figure came down to 119 million in 2011. This shows that there is a shift from farm employment to non farm employment

(ii) Widespread poverty: Every thind poor person in the world is an Indian. The poverty ratio was 15.3 per cent in 1993-94 and 32% in 2004-05 According to the latest available data from planning commission in 2011-12 nearly 21.9% population was below poverty line.

(iii) Rapid population growth : Over the years, Indian population has grown at a fast rate of more than 2 per cent. The population was 36.11 crores in 1951 whch went up to 102.7 crores in 2001 In 2011 the population was 121.02 crore. The dependency rate Le percentage of people in non-working age group (below 15 and above 64 years of age) is nearly 57 5 per cent in India as compared to developed countries where it is much less.

(iv) Low per capita income: India’s per capita income was $1499 in 2013. It is low not only compared to developed countries like USA, UK, Germany but also compared to developing countries like China, Sri Lanka, Indonesia etc.

(v) Low rate of capital formation: In India, because of low per capita income and low saving rates the gross capital formation rates have remained considerably low. Gross domestic savings were generally below 20 per cent of GDP (at current prices) between 1950-1990. As a result, gross domestic capital formation has also remained below 20 per cent during these years. Consequently, the rate of economs growth has remained stuck at a relatively how level no 1990.-91, there have been improvements in saving and investment rates Beginning with around 25 per cent in 1991 the gross domestic savings nate nached 34per cent in 2010-11 falling to 308 per cent in 2011-12 Sonilarly gross domeste capital formation becaine 165 per cent in 2010-11 starting from 26 per cent in 1900 – 91.

(vi) Backward production techniques: Techniques of production, especially in the agriculture sector are still backward Productivity in agriculture as well as in industrial sector is low in India as compared to advanced countries

(vii) High incidence of unemployment: The incidence of unemployment in India is quite high. As per seth Round of Survey (2009-10) by National Sample Survey Office (NSSO), unemployment rate was as high as 6 per cent of the labour force (busest on Current Daily Status) in 2009-10. This became 5.6 percent in 2011-12 (68th Round, NSSO) In other words, out of 1000 persons in the labour force, as many as 56 are unemployed. The comparative data in 1900-2000 was 7:31 per cent and for 2004-05 it was 8.2 per cent

Not only there is high rate of open unemployment the rate of disguised unemployment is also very high. Disguised unemployment means apparently people are employed but their contribution to the production is very very low. This kind of unemployment is more common in the agricultural sector. However, it is impossible to find out the exact extent of this kind of unemployment.

(viii) Poor quality of population: In India, the level of human well-being is also quite low For measuring human well-being generally Human Development Indes (HDI) constructed by the United Nations Development Programme (UNDP) is used. The HDI is a composite of three basic indicators of human development – longevity, knowledge and standard of living. Longevity is measured in terms of life expectancy at birth, knowledge in terms of education and standard of living in terms of real GDP per capita. The HDI is a simple average of the above indices.

The UNDP finds this index for all countries and ranks them. According to the latest UNDP Report 2013, India’s relative global ranking on this index has remained at a low of 136 among 187 countries. The comparitive ranking in 2010 was 119 (out of 169 countries) Its HDI was 0.463 in 2000 which improved to 0547 in 2010 and further marginally improved to 0.554 in 2012

Although over a period of time, there has been improvement in India’s overall HDI rating other countries like China, Sri Lanka, Thailand, Philippines, etc in the same category have performed better than India in terms of human development.

Economic inequalities: The distribution of income and wealth in India is not equitable in order to measure the in the inquality of income and wealth, generally Ginsi index is used. The Gini index measures the extent to which distribution of income / consumption among individuals or households within an economy deviates from a perfectly equal distributions An index frepresents perfect quality while an und of one represents perfect inequality The Gini coefficient lies between 0 and 1. According to the Human Development Report 2013, the Gini index for India for 2011-12 was 0.334, The pending figure was 1.297 in 1994 and 0.368 in 2010-11. Thus, over this period, the inequalities of income and wealth have increased. Indi’s Gard Index was more favourable than these of comparable countries like South Africa) (0.578), Brazil (0.55), Thailand (0.425) China (0.415) and even USA (0.408)



On studying the various features of the Indian economy we may rush to the conclusion that Indian economy is an underdeveloped economy. But that is not completely trie Indian economy has over the decades shown marked improvements. It is in fact moving Tast on the path of development. The following facts are important here

(I) Rise in National income: India’s national income ie. Net National Product (NNP) factor cost was 25000 crore in 1950-51 which rose to nearly 50,00,000 crore fat constant prices) in 2013-14 Thus, over a period of 63 years, the NNP has increased by more than 18 times. However, 1990 onwards the economy has developes rapidly During the period 1991-2011 the economy has grew at the average rate of 68% per year

(ii) Rise in Per Capita Income: Per capita income in India was 7114 in 1950-51 (at constant prices) Itrose 39904 in 2013-14 Thus, over a period of 63 years, the per capita income has increased by more than four (five) times. During this period the 1950-51 to 1990-91 the rate of increase per capita income increased at an average 1.6% per year. Since 1990-91 it has increased at the rate of 5.5% per year.

(iii) Not much significant changes in occupational distribution of population: By occupational structure of a country we mean the distribution of work force in different occupations of the country. All occupations are broadly divided into three groups

(i) Primary Sector: Primary sector includes agriculture and other activities related with agriculture such as animal husbandry, forestry, poultry farming etc

(ii) Secondary actor : This code all type of manufacturing a thrities including

(iii) Tertiary sector: This sector includes trade , transport communication banking and other such services.

In general, it has been found that as an ecunniny grows, there is a shift of labour force from primary sector to secondary and tertiary sectors. The proportion of working population in agriculture and allied activities falls and the proportion of working population in secondary sector and tertiary sector rises. However this has not happened in India in any significant way.

Occupational distribution of working population in India(%)

Occupation1951 20012011-12
primary Sector72.156.748.9
secondary Sector10.618.224.3
Tertiary Sector17.325.226.9

Thus, the changes in the occupational distribution of labour into various sectors during the plan period have been rather marginal.

(iv) Important changes in sectoral distribution of domestic product: An important indicator which shows that India is growing is decline in the share of agricultural sector in the overall gross domestic product. The following table shows how over a period of five and a half decades, structural changes have taken place in India. The share of agricultural and allied activities has fallen and shares of secondary (industrial) sector and tertiary (services) sectors have improved in the GDP (%).

Composition of GDP


Thus, today the service sector is the largest contributor in GDP

A Growing capital base of the economy: After Independence, per tally in the Send Plan a high priority was given to establishing basic ishistries. As a ge mber of industries have been established during the planning period. These include in and steel, beavy chemicals, nitrogen fertilizers, beary ging machinetoc locomotives, heary electrical equipment, petrole um products and many more

(vi) Improvements in social overhead capital Social overhead capital mainly includes transport facilities, irrigation facilitus, energy, education system, health and medical facilities When dere is an expansion in these facilities, we say that the economy growing In India, ce Independence, these facilities have improved a lot as can be we from the following points Indian always covers about 65000 kilometres Indian railways in Asia’s largest and world’s fourth largest rail network under a single management

Diesel and electrical locomotives have placed steam engines The Ilian road network has become one of the largest network in the world gregating 4.86 million kilometers

Although the country is still facing energy crisis, there has been an impressive increase in the installed capacity. In 2011-12, the installed electricity generating capacity was about more than 2.43,000 MW (Mega Watt) against 2.300 MW in 1950- 51

Similarly, irrigation facilities have increased raising the land under irrigation from 22 .6 million hectares in 1950-51 to 63 million hectares in 2012-13 in the field of education, during the planning period, the number of primary educational institutions has nearly quadrupled the numbers of middle/senior basic schools and higher secondary educational institutions have increased by around 23 times. There are now more than 35.000 colleges for general estucation and 7000 colleges for professional education and more than 612 universities The literacy rate has increased from 18.33 per cent in 1951 to 73 per cent in 2011 (Economic Survey 2013-14)

In the field of medicine and health also, some development has taken place. The number of doctors has increased by more than 12 times increasing from 6100 is 1951to more than 9.22 lakhin 2012. The bed-population ratio is now 1.03 per1.000 population increasing from 0.32 per 1,000 in 1950-51.

(vii) Development in the banking and financial sector: Since Independence important developments have taken place in the banking and financial sector Initially banks were under private ownership. Bot afer Inslependence, the process of rationalization was started in 1949 Reserve Bank of India was nationalised and later on in 1999 and 1980 twenty big books were nationalised As a result, banks which earlier catered to very small population have now reaches at every nook and cornet Moreover, the bands have started taking care of the priority sectors of the economy


In India, we observe that the following characteristics exist which theme that India is a mixed economy.

1. Private ownership of means of production Agriculture and most of the industries and services are in the private hands, 2. Important role of market mechanism Market forces of demand and supply have Iree role in determining prices in various markets. Government regulations and control over period of time have decreased a lot and the Government has become more and more market friendly

3. Growth of monopoly houses Over a period of time, many big business houses have come into being and have been growing such as Tatas, Birlas, Reliance, Infosys etc.

4. Presence of a large public sector along with free enterprise In India, the public sector has developed on a large scale along with the private sector. In the public sector there are basic, heavy, capital goods industries and industries like detence, atomic energy which are of strategic importance

5. Economic planning as a means of realizing overall national economic goals Economy planning has been an integral part of the Indian Economy Here planning is only indicative in nature and not compulsive. The government and the planning commission decide the areas and targets for private sector and public sector and incentives are provided to private sector to achieve the plan targets,

The planning in socialist countries is physical, centralised and mandatory The planning in India is financial, decentralised and based upon market incentives. Observing the above characteristics we conclude that Indian economy is a mixed economy


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