CHARACTERISTICS OF

INDIAN ECONOMY

Dr. James Manalel, Professor, SMS

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CHARACTERISTICS OF
INDIAN ECONOMY
Underdeveloped economy
—26% BPL
– Features of a Developing Economy.
--5% in China

Rural 27.1
Urban 23.6
Combined 26.1

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Rich country inhabited
by poor people
India has 17% of world Population, but only
1.7% of world GNP (2003)
China 20.5% of population and 4.1 % of
GNP
India is the 4th largest economy in the world,
after US, China, and Japan (GDP,ppp)
Accounts for 5.9% of World GDP (in 2005).

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Rich country inhabited
by poor people…
India is 28th largest exporter and17th
largest importer of merchandise
10th largest exporter of commercial
services and 13th importer.(2006)
Has 6 Fortune 500 companies, whereas
US has 170. (2006)

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 GROSS NATIONAL
INCOME:
in 2008 ($ bn)
India 1,216 Times larger than India
China 3,899 3.2
Germany 3,486 2.9
Japan 4,879 4.0
Switzerland 499 0.41
USA 14,466 11.9
World 57,638 India = 2.11%

( as per WDR , 2010)

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GROSS NATIONAL INCOME
: at PPP ($bn)

India 3,375 Times larger than India

China 7,984 2.4

Germany 2,952 0.62 (62.2%)
Japan 4,498 1.0
Switzerland 355 0.07 (7.2%)
USA 14,283 3.1
World 69,309 India = 6.33%

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 Low Per Capita Income:
PCI in selected countries (2008)
Country PCI ($) Times larger than India
India 1,070
Norway 87,070 81.4
Switzerland 65,330 61.1
Germany 42,440 39.7
USA 47,580 44.5
Japan 38,210 35.7
China 2,940 2.7
World 8,613 8.0
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 PCI in 1999 = $450 only – one of the lowest.
(as per WDR, 2000-01).
In 2003 = $ 530( as per WDR, 2005)
In 2005 = $820(WDR,2008)
Annual Growth rate in PCI: average for
1990-91 (2002-03)

India = 6.1% (6.4) USA = 3.4%(2%)

Japan= 1.4% (2.7) Switzerland =0.5%(-1.2%)
China= 10.7%(8.4)

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 PCI in terms of PPP:
INDIA = $2149 (1999) = $2960 (2008)
Country PCI (PPP$) Times higher than India
Norway 58,500 19.8
USA 46,970 15.9
Switzerland 46,460 15.7
Japan 35,220 11.9
Germany 35,940 12.1
China 6,020 2.0
World 10,357 3.5

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 India’s Per Capita Income
2006-2007
Only Rs.29,382 (i.e. about Rs 2500 p.m
and if we adjust for inflation it would be
around Rs.1873 only).
Yet, India has the largest number of
Billionaires in Asia (36) ( $100 cr asset)
These 36 account for Rs.8.6 lakh cr
assets.
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1.         OCCUPATIONAL PATTERN
--primary producing
= typical of underdeveloped economies
--a high share in NI and Employment
in 1998:
INDIA: 61% of working population in agri and
contributed 25% to NI
In 2001: 58% and 27% respectively
2004-05: 56.5% & 20.2%
Whereas, in USA and UK only 2% of
population in agriculture (data for 1998)
In Japan 5% In China 69%
In India 61%

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But the share of agri in GDP(NI): 2003
Germany, UK, Japan, USA, < 2%
China 15 %
India 23 %
World 04 %
Share of Services in GDP:
USA 75% Germany 69% Netherlands 71%
Japan 68%+ China 32%
INDIA 52% World 68%
At the same time, the productivity per
person employed in agri is very low in India.
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 VALUE ADDED BY
AGRICULTURAL WORKERS
($) 2000-02 2002-04

India 401 382

China 338 373
Germany 33,686 23,616
USA 53,907 36,863
Denmark 63,131 37,443
Netherlands 59,476 39,358
WORLD 1,051 863

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 HEAVY POPULATION
PRESSURE:
High level of birth rates and falling death rates.
16 % of world pop growth is from India (largest
by 2050)

Population Growth rate (India):

1941-50 = 1.3% 1981-98 = 2%
Between 1990-2003: Population Growth rate
  India 1.7%
China 1.0%
World 1.4%
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 Steep fall in death rate:
1911-20           = 49 per thousand
2001-02 = 8.1 per thousand
Birth rate:
1911-20           = 49 per thousand
2001-02 = 25 per thousand
Hence, higher growth rate in economy needed to
maintain the same std of living. (growing demands
of food, clothing, shelter, medicine, schooling etc.)
--Rising population = rising labour force 
leading to unemployment = wastage.

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 Prevalence of Chronic Unemployment
and Underemployment:
Here it is chronic and structural due to scarcity
of Capital
Industrial sector unable to expand fast to absorb
the labour force
But in developed economies: it is cyclical.
Agriculture: = disguised unemployment
--no non-farm employment in rural areas.
More than 2% of labourforce=open unemployment
8.43% = underemployment.
Hence, total unemployment = 10.45% of labour
force.
(more recent figures put it at 8.28%) about 34.74 million.
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LOW RATE OF CAPITAL FORMATION:

Amount of capital per head is low: evidence:

2 indicators of this: Consumption of crude steel and energy

Country Per capita consumption of

Crude steel ( kg) (1987) Energy (kgs of oil
equivalent (1997)
USA 417 21 times higher 8076 17 times
UK 259 13 3863 8
Japan 582 29 4084 8.5
China 64 3.2 907 1.9
India 20 479
Source: WDR (00-01)

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Per capita consumption of Steel
2005 in Kgs.
India 38
China 250
Developed world 400
World average 200
India is poised to be 2nd largest producer
of steel in the world by 2015-16, next
only to China.

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 GROSS DOMESTIC CAPITAL FORMATION:
The current rate of capital formation is also low

Gross Domestic Investment & Saving (as % of GDP)

Country Gross domestic investment Gross domestic saving
1990 1999 2003 1990 1999
Japan 32 29 26 33 30
USA 17 19 18 15 17
UK 19 16 16 17 15
India 25 24 24 22 20
India’s domestic savings rate: 2006-07 = 34.3% &
gross domestic investment 35% of GDP (06-07).
Gross cap formation as % of GDP (2005) = 23%,
while China = 39% 19
According to Prof. Colin Clark: in order to
maintain the same std. of living, a country
requires an additional investment of 4% p.a., if
its population increases @ 1% p.a.
Hence, in a country like India, where the
population grows @ 2% p.a. we need an
additional investment of 8% just to offset the
population growth.
And India will require a 14% level of gross cap
formation in order to also cover the depreciation
and maintain the same level of living.
( so, higher if it is to grow).
--Though the 20% savings rate is good, it is not adequate
to maintain the growing population.
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 GDP GROWTH RATE
9.4% in 2006-07.
9% in 05-06.
The highest growth rate during the last
18 years
But agriculture sector grew by only
2.7% (against a target of 4%).
Targeted growth rate for GDP for 11th
Plan = 9%.

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INEQUITABLE DISTRIBUTION OF
WEALTH/ASSETS:
As per RBI All India Debt and Investment
Survey—1991-92 (RBI Bulletin, May,1999)

In rural areas: 

Nearly 51% of the bottom households

owned just 10% of the total assets; whereas,
9.6% of the rich households (owning assets
worth Rs.2.5 lakhs and above) accounted for
nearly 49% of total assets.

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 In urban areas: it was worse.
 50.7% of urban households (owning less than
Rs.50,000 worth of assets) accounted for barely
5.3% of total assets;
whereas, nearly 66% of total assets of all urban
households were held by 14.2% of households
(each owning Rs.2.5 lakhs and above).
The resource base of 50% of households is so
weak that it can hardly provide them anything
above the subsistence level of income.
Despite Planning: concentration of wealth has
increased: condition of the bottom 20% of population
has deteriorated, while for the next 20% it has remained
stagnant.
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 Poor Quality of Human
Capital:
  illiteracy; conservatism and
superstition and fatalism
  HDI rankings: India(.612) = 134th (2007)
(China (0.772)=92, Norway=1st, (0.971)
USA=8th, JAPAN=10th), Australia = 2nd

as per HDR,2009), (out of 182 countries)

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 LOW LEVEL OF TECHNOLOGY:
--In an LDC usually most modern techniques
exist side by side with primitive techs.
but as compared to Developed countries their
technological stds are inferior generally—affects
their productivity.
basic conditions required for absorption of new and
superior technology like: basic edn.levels, trained/skilled
manpower, and adequate capital.
 The low productivity per hectare in agri and low
labour productivity in agri + industry = due to
technological backwardness.
 The poor farmers do not have the means to buy improved
inputs, tools, not to speak of more expensive machines
like tractors, sowing machines etc.
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 Low Standard of Living of
average Indian:
   Low calorie intake and low intake of protein
In 1996: The average calories intake of food was only
2,415 whereas in most developed countries it was
3,400 calories (minimum required for sustaining life is
= 2,100 cal ).
  The average protein content of the Indian diet
is only 44 grams/day while for developed
world, it is double this.
 In India cereals predominate (whereas in
developed countries, it is rich with intake of
meat, fish, butter, sugar and fruits)
--Our cereal consumption is 470 calories/day against
the requirement of 400 cal/day per adult.
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Roughly 25 to 40% of population suffers
from malnutrition
--the average protein content of Indian diet (at
44gms/day) is only ½ of that in developed
countries.
--per capita availability of milk is also lower.
--nearly 60% of the mothers are malnourished.
--46% of child pop in India suffers from
malnutrition
-- in 1996, only about 85% of population had
access to safe drinking water. (90-91: only 81%;
W Europe = 99%+more; China =90%

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 Poor Quality of Population

In 2004-05:
About 40% adults suffered from chronic
energy deficiency
35% of workers were illiterate
20% of workers were in the households
below poverty line.

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Housing:
--about 31% of population in Indian cities
(with pop >1mn) are slum dwellers.
--it is estimated that every fifth(1/5)
house in India is unfit for living.
--there were 23.3 lakhs “houseless”
people in 1981.
--in 1991, there was a shortage of 31
million housing units; and now there is a
backlog of 41 million housing units.

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 DEMOGRAPHIC
CHARACTERISTICS:
UNDERDEVELOPED ECONOMY: =
--high density of population
--large % of population in the age group of 0-15 and lower
in the working age group of 15-60.
--low average life expectancy ratio + high infant mortality
rates.
India: Density =358 per sq.KM (2003)
For the world as a whole = 48 per sq.Km.
USA = 32; Japan = 4390; Germany = 237; Canada and
Australia = 3
China = 138; Bangladesh = 1061.
2001 Census: 33.5% of pop in age group of 0-14
only 61.5% in working age group (15-64)
So, high dependency load.
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 SOCIO-ECONOMIC INDICATORS OF
CONSUMPTION:
--in terms of calorie, proteins etc.,
--population per T.V., telephone line etc.
-- population/physician etc.
Per capita daily intake (1997)
Country fats Proteins calories
gms gms
India 45 59 2496
China 71 78 2897
USA 143 112 3699
Japan 83 96 2932

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 POOR ECONOMIC
ORGANISATION:
--Fin institutions, Capital Mkt, Forex Mkt.,
Management
e.g.: institutions for mobilizing savings esp.rural
savings
--also for industrial, and production loans
(agri/business/industry)
--existence of moneylenders (exploitation)
--institutional bottlenecks
--dishonest, corrupt and inefficient
administration/civil service.
OF COURSE, IN MANY RESPECTS WE HAVE
IMPROVED.
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INDIA’S RELATIVE SHARE AND RANK IN THE WORLD

% share Rank
Area 2.47 7
Population 16.67 2
GDP 1.52 12
Electricity generation 3.62 8
Exports (goods & services) 0.7 30
Agriculture & allied
Arable land 11.25 2
Irrigated area 21.3 1
Production

Rice (paddy) 21.67 2

Wheat 11.2 2
Tobacco 8.45 3
Tea 30.0 1
Milk ( cow & buffalo) 12.41 2
Butter & Ghee 22.4 1
Sugar 11.45 2

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 Share Rank
(Percentage)
Population (2002) 17 2
GNP (2002) 1.6 11
GNP measured at PPP (2002) 5.5 4
GNP per capita (1999) --- 162
GNP per capita measured at PPP (1999) --- 163
Human Development Index (2002) -- 127
Export of goods (2003) 0.8 31
Import of goods (2002) 0.9 24
Export of services (20003) 1.4 120
Import of services (2003) 1.1 23
Net Foreign Direct Investment Inflow 0.5 ---
(2002)
Source: Compiled /computed from different sources

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 INDIA’S RANK
Population 2 Area 7
Arable land 2 Irrigated area 1
Tractors in use 2 nitro fertiliser use 2
Rice prodn 2 Wheat prodn 2
Tobacco prod 2 Tea prodn 1
Milk prodn 1 Butter & ghee 1
Sugar prodn 2

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CLASSIFICATION OF COUNTRIES
ON THE BASIS OF PER CAPITA INCOME
LOW INCOME COUNTRIES: 3rd WORLD
$ 765 or less (2003) – 61 countries
 $975 or less (2008) as per WDR,2010
MIDDLE INCOME COUNTRIES: 2nd World
>$ 766 but < $9,386 – 93 countries
 $ 976 -- $11,906 (2008)
LOWER MIDDLE INCOME ($766-3,036) 56 countries
UPPER MIDDLE INCOME ($3,036-9,385) 37countries.
HIGH INCOME COUNTRIES: 1st World (NORTH)
$ 9,386 or more – 55 countries.
 $11,906 or more (2008)

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DEVELOPING & DEVELOPED
ECONOMIES
LESS DEVELOPED & MORE
DEVELOPED COUNTRIES (LDC &
MDC)
LEAST DEVELOPED ECONOMIES:
55 Countries (as per HDR,2004).
 Very low GNP per capita;
 land locked and remote insularity;

 desertification and exposure to natural

disasters

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NEWLY INDUSTRIALISING
ECONOMIES: Asian Tigers; China

TRANSITION ECONOMIES: from

centralized ec.system to market
economies
e.g.: former Soviet Union(CIS), East
European countries

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 CHARACTERISTICS OF
DEVELOPED AND DEVELOPING
COUNTRIES

** Income is not the sole criterion for

development

** ECONOMIC GROWTH and

ECONOMIC DEVELOPMENT : not
the same

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   an
increase in income =
indication of economic
growth

ECONOMIC DEVELOPMENT: means

more than growth alone.

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Some qualitative dimensions also:

Distribution of income
Standard of living
Composition of output
Working conditions
Overall improvement in economic
welfare

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Hence includes:
Improvement in material welfare
Growth in incomes esp.of lowest
categories
Reduction in mass poverty, illiteracy,
disease
Improvement in life expectancy
Degree of participation in decision-
making and in Govt.(voicelessness)
Basic human rights
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According to Amartya Sen:

Development requires the removal of

major sources of unfreedom:

i.e. poverty, social deprivation,

intolerance, discrimination in
opportunities etc…

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CHARACTERISTICS OF DEVELOPED
ECONOMIES
Besides income and social dimensions, other
common characteristics: general affluence.
modern sophisticated technology
continuous innovations, faster diffusion of new
ideas and technology
low share of primary sector and dominance of
tertiary and secondary
market friendly economic policies
open trade and investment policies
democratic rights, competition and consumer
choice
--Also marred by patches of poverty
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 CHARACTERISTICS OF
DEVELOPING ECONOMIES

Low income ( deprivation )

Inequality in distribution of income (high
BPL population)
Low HDI (India = 0.612. She is ranked
134th in 2007, out of 182 countries)

 HDI (2006) India = 0.604 (134th).

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 Characteristics as per Harvey
Leibenstein:
1.    ECONOMIC
A)    General:
    i.    High proportion of population in agriculture
    ii.   over population in agri. + disguised
employment
    iii.  little capital per head; low income per head
    iv.  savings mostly with land holding class
    v.   major expenditure: food + necessities
    vi.  major exports : foodstuffs and Raw materials
    vii. agri output: mainly cereals, R.M., low protein
foods
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   A)    General: (continued):

 viii.      low volume of trade per capita

  ix.      poor credit and marketing
facilities
   x.      poor housing

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 b) Basic Characteristics in
Agriculture:
--uneconomic use of even the low capital due to
small size of holdings
--low technology, not modern tools & equipments
--commercialisation of agriculture suffers due to
transport bottlenecks and low level of
local demand.
--little effort at land improvements : soil depletion
--high level of indebtedness of farmers :
vulnerability
--land hunger : subdivision and fragmentation.

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 DEMOGRAPHIC
--high fertility rates
--high mortality rates + low life
expectancy
--inadequate nutrition and dietary
deficiencies
--hygiene, public health and
sanitation : rudimentary
--rural over-crowding.

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 CULTURAL AND POLITICAL

        Rudimentary education and high

illiteracy
        Child labour : extensive
        Middle class : absent or
insignificant
        Women’s status: inferior
        Very tradition-bound population

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 TECHNOLOGICAL AND
MISCELLANEOUS
        Low yield per acre
        No/inadequate training facilities
        Transport & Communication &
Infrastructure: inadequate and
crude
        Technology : crude

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HIGGINS says these countries are
characterized by vicious circles of
poverty

--the hen and egg nature of these make

it difficult to separate the causes and
effects.

Hence, perpetual Vicious Circles.

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 UNCTAD
in its Human Development Report uses some
composite indices to indicate the level of welfare
or deprivation ( HDI; HPI; GDI)

HUMAN DEVELOPMENT INDEX

HUMAN POVERTY INDEX
GENDER RELATED DEVELOPMENT INDEX
 
   Possible that countries with similar HDI
values may have different PCI levels

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 HUMAN POVERTY vs
INCOME POVERTY
(As per the Human Development
Report)

INCOME POVERTY = deprivation in a

single dimension, i.e. income.
--implies that the only real
impoverishment = lack of income

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 HUMAN POVERTY
= impoverishment of multiple
dimensions
--so, income is not the only factor
DEPRIVATION of :
       Long and healthy life
       In knowledge
       Decent standard of living
       In participation
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HUMAN DEVELOPMENT INDEX
(HDI)

--average achievements in 3 dimensions

--composite index of 3 variables:
1.     Life expectancy at birth
2.     Educational attainment ( adult literacy,
and combined gross primary, secondary
and tertiary enrolment ratio)
3.     GDP per capita ( at PPP US $ )
--income is therefore proxy for standard of
living.

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 HUMAN POVERTY INDEX ( HPI )
     measures deprivation in human
development
     While HDI measures overall progress in
achieving human development,
HPI shows the distribution of progress and
measures the backlog of deprivation that still
exists.
        Two separate HPI constructed:
HPI-1 for developing countries
HPI-2 for developed countries.
BECAUSE: deprivation is relative to the social
and economic conditions of the community.

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 HPI-1
     Same variables as used for HDI

1.  % of people expected to die before

40
2.  % of adults who are illiterate
3.  deprivation (economic) : reflected
by % of people without access to health
services, safe water etc. and % of
underweight children.

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 HPI-2
     above 3 dimensions + 1, i.e. social
exclusion.
     % of population expected to die before 60
     % of people whose ability to read and write
are not adequate to be functional
     % of people who are income poor ( i.e.
disposable income ,50% of median
disposable household income).
     % of long term unemployed ( 1 year or more)

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 GENDER RELATED
DEVELOPMENT INDEX ( GDI )
Same dimensions as HDI
     but takes into account inequality in
achievement between women and men.

     Greater the gender disparity in basic

human development, the lower the GDI
compared with its HDI.

--GDI is therefore, HDI discounted or

adjusted for gender inequality.

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 GENDER EMPOWERMENT
MEASURE ( GEM )
     measures whether women are able
to actively participate in economic
and political life.

While GDI indicates gender inequality in

basic capabilities, GEM measures
inequalities in economic and political
arenas.

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 HDR,2009 (UNCTAD)
HDI RANK 2007 GDI RANK 2005
(182 countries) (157 countries)

Norway 1 Norway 2
Australia 2 Australia 1
China 92 China 75
S Lanka 102 S Lanka 83
India 134 India 114
Pakistan 141 Pakistan 124

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