Nature of Indian

Economy

What is Economics?

Economics is the social

science that describes the factors

that determine
the production, distribution and
consumption of goods and
services.

What is Economics?
Economics is a study which can describe all
aspects of a countrys economy, such as :
how a country uses its resources ?
how much time laborers devote to work and
leisure?
the outcome of investing in industries or
financial products?
the effect of taxes on a population?
why businesses succeed or fail?

National Income

National Income is the

money value of all final goods

and services produced in an
economy during a financial
year.

Estimates:

Gross Domestic Product: It is

the final value of goods and services

produced with in the boundary of a
nation during one year period.

Other Estimates:
Net Domestic product , NDP: This

equals the gross domestic product

(GDP) minus depreciation on a
country's capital goods. Net domestic
product accounts for capital that
has been consumed over the year
in the form of housing, vehicle, or
machinery deterioration.

GNP
Gross national product (GNP) is the total value of all

goods and services produced plus the income earned

minus the income of non-residents.
GNP = GDP + (factor payments from abroad) (factor

payments to abroad)
FACTOR PAYMENT: A wage, interest, rent, and

profit payment for the services of scarce resources, or

the factors of production (labor, capital, land, and
entrepreneurship), in return for productive services.

Per capita income or average income

It measures the average income earned per person

in a given area (city, region, country, etc.) in a

specified year.
It is calculated by dividing the area's total income by

its total population.

Methods for measuring National Income

The national income of a country can be measured

by three alternative methods:

(i) Product Method or output or value added method
(ii) Income Method
(iii) Expenditure Method.

Product Method or output or value added

method
We calculate money value of all final goods and

services produced in an economy during a year.

Final goods here refer to those goods which are

directly consumed and not used in further

production process.
This method is generally used for agriculture,

fishing, forestry , mining, etc

Product Method or output or value added method

Goods which are further used in production process

are called intermediate goods. In the value of

final goods, value of intermediate goods is already
included therefore we do not count value of
intermediate goods in national income otherwise
there will be double counting of value of goods.
Value Added = Value of Output

Intermediate Consumption

Steps of Value Added Method:

Step 1: Identify and classify the production units:
The first step is to identify and classify all the producing
enterprises of an economy into primary, secondary and
tertiary sectors.
Step 2: Estimate Gross Domestic Product at
Market Price:
In the second step, Gross Value Added at Market Price
(GVAMP) of each sector is calculated and sum total of
GVAMP of all sectors give GDPMP, i.e. GVAMP = GDPMP.
Value Added = Value of Output Intermediate
Consumption

Product Method or output or value added

method
Step 3: Calculate Domestic Income (NDPFC):
By subtracting the amount of depreciation and net indirect taxes
from GDPMP, we get domestic income, i.e. NDP FC = GDPMP
Depreciation Net Indirect Taxes.
Net Indirect Taxes: Indirect taxes subsidies

Step 4: Estimate net factor income from abroad (NFIA) to

arrive at National Income:
In the final step, NFIA is added to domestic income to arrive at
National Income.
National Income (NNPFC) = NDPFC + NFIA

Factor cost or national income by type of income is

a measure of national income or output based on the

cost of factors of production, instead of market

prices.

Product Method or output or value added method

Suppose a baker needs only flour to produce bread.

He purchases flour as inputs worth Rs 500 from the

miller and then by virtue of its productive activities,
converts the flour into bread and sells the bread for
Rs. 700.
Difference between the value of output and
intermediate consumption is termed as Value
Added. It means, that the baker has added a value of
Rs. 200 to the total flow of final goods and services
in the economy.

Product Method or output or value added method

To avoid the problem of double counting we

can use the value-addition method in which

not the whole value of a commodity but valueaddition (i.e. value of final good value of
intermediate good) at each stage of
production is calculated and these are
summed up to arrive at GDP.
The money value is calculated at market prices so
sum-total is the GDP at market prices. GDP at market
price can be converted into by methods discussed
earlier.

Income Method:
Under this method, national income is measured as

a flow of factor incomes.

There are generally four factors of production

labour, capital, land and entrepreneurship.

Labour gets wages and salaries, capital gets interest,

land gets rent and entrepreneurship gets profit as

their remuneration.

Income Method:
Besides, there are some self-employed persons who

employ their own labour and capital such as doctors,

advocates, CAs, etc. Their income is called mixed
income.
The sum-total of all these factor incomes is called

NDP at factor costs.

Expenditure Method
Under this method, we estimate the disposal of income on

the purchase of final goods and services.

It includes:
(a) Personal consumption expenditure of households;
(b) The gross private domestic investment, i.e. business
spending on capital goods;
(c) The net foreign investment, i.e. net spending by
foreign nationals, firms and governments for the
countrys goods and services, and,
(d) Government purchases of goods and services.

GDP = C+I+G+X-M
Consumer spending :C
Business investment :I
Government spending :G
Net exports, which is exports minus

imports : X-M

Which Method is Suitable?

Which method is actually employed, depends on the

stage of economic development of a country or the

availability of necessary statistics.
In advanced countries, where the required statistical

information is available, all the methods may be

used.

NNP growth rates

During eighth plan (1992-1997), NNP growth rate of

the order of 6.7 % has been achieved with a per

capita growth of 4.5 %.
Where as during 11th plan (2007-2012), the rate of

growth of NNP remained 7.6% and 6.2% in per

capita NNP.

Increase in the national income at the current prices

are due to the two factors:

Increase in production of real goods and services:

Good indicator, as more goods and services become

available to the people.
Increase in prices: Un real inflation.

India Public sector share in its Gross Domestic Product

Increase in the share of public sector:
1970-71: 14.9 %
2008-09: 20.8 %

Organized and unorganized sector

Percentage share in NDP by the below mentioned

sectors:
1980-81

1980-81

2007-08

2007-08

Organized

unorganiz
ed

Organized

unorganiz
ed

30

70

42.9

57.1

NOMINAL vs REAL GDP

The main difference between nominal and real

values is that real values are adjusted for inflation,

while nominal values are not.
Nominal GDP is GDP measured in current prices which we
pay for final goods and services.
Real GDP is the value of a nation's total final goods and
services, adjusted for price changes. It valued at the prices
of a reference base year. A base year is the year we choose
against which to compare all other years. Real GDP is also
called gross domestic product in constant prices. Note that
real GDP is also known as constant-price GDP and inflationcorrected GDP.

Limitations of national income estimates

(i) Non-Monetized Output and Its Transactions:
In the estimation of national income or output, only
those goods and services which are exchanged against
money are normally included. But in a less developed
country like India, a huge portion of our total output is
still either being consumed at home or being
bartered away by the producers in exchange of
other goods and services leading to the noninclusion of huge non-monetized output in the
national income estimates of the country.
This problem of non-monetized transactions is very
much in the rural areas whose inclusion in NDP is
really difficult.

(ii) Non-Availability of Information about Petty

Income: The national incomes estimate in India is
also facing another problem of non-availability of
information about the income of small producers
and household enterprises. In India a very large
number of producers are still carrying on production
at a family level or are running household
enterprises on a very small scale.

(iii) Lack of Differentiation in Economic

Functions: In India the occupational classification
is incomplete and thus there is lack of differentiation
in economic functions. As National Income Statistics
are collected by industrial origin thus classification
of producers and workers into various occupational
categories is very much essential.

(iv) Unreported Illegal Income: In India the

parallel economy is fully operational as hidden or
subterranean economy. Thus there is huge
unreported illegal income earned by those people
engaged into those parallel economy which is not
included in the national income estimates of our
country.

Indian economy
The Economy of India is the seventh-

largest economy in the world measured by nominal

GDP and the third-largest by purchasing power
parity (PPP).
The country is classified as a newly industrialized

country, one of the G-20 major economies, a

member of BRICS and a developing economy with
an average growth rate of approximately 7% over the
last two decades.

Maharashtra is the wealthiest Indian state and has

an annual GDP of US$220 billion, nearly equal to

that of Portugal, and accounts for 12% of the Indian
GDP followed by the states of Tamil Nadu (US$140
billion) and Uttar Pradesh(US$130 billion).
India's economy became the world's fastest

growing major economy in the last quarter of 2014,

replacing the People's Republic of China

When making comparisons between countries which use different currencies it

is necessary to convert values, such as national income (GDP), to a common

currency.
This can be done it two ways:

1. Market exchange rates: Using market exchange rates creates difficulties:

Firstly, market exchange rates can quickly change, which artificially changes

the value of the variable in question, such as GDP. For example, a one-month
appreciation of the US$ by 5% against the Japanese Yen would reduce the dollar
value of the Japanese economy by 5%. Clearly, this is more to do with changes in
the exchange rate than changes in the underlying state of the Japanese economy.
Secondly, market exchange rates are determined by demand and supply of

currencies, which reflect changes in imports and exports of traded goods and
services.

Purchasing Power Parity

2. Purchasing power parity is a

method of comparing wealth
across countries and also a tool
for reality-checking exchange
rates between currencies.

Example : PPP
Purchasing Power Parity (PPP) is measured by

finding the values (in USD) of a basket of consumer

goods that are present in each country (such as orange
juice, pencils, etc.).
1. If that basket costs $100 in the US and $200 in England,
then the purchasing power parity exchange rate is 1:2.
2. A pair of shoes costs Rs 2500 in India. Then it should
cost $50 in America when the exchange rate is 50
between the dollar and the rupee.

Example : PPP
Suppose that Japan has a higher GDP per capita

($18) than the US ($16). That means that Japanese

on average make $2 more than normal Americans.
However, they are not necessarily richer.
Suppose that one gallon of orange juice costs $6 in
Japan and only $2 in the US; then $6 in Japan
exchanges to only $2 worth of US goods, since the
Japanese can only buy 3 gallons while the Americans
can buy 8 gallons. Therefore, in terms of orange
juice, the Americans are richer,

India's share in World GDP in terms of PPP was 6.4% in

2011 compared with China's 14.9% and the US' 17.1%. The
survey covered 199 economies.
"The United States remained the world's largest
economy, but it was closely followed by China
when measured using PPPs. India was now the
world's third largest economy, moving ahead of
Japan," the report said.
Despite high inflation in India in recent years,
prices in the country are still well below those in
advanced economies, explaining the higher
raking for India on the PPP measure.

G 20 major economies
The G20 (or G-20 or Group of Twenty) is

an international forum for the governments and central

bank governors from 20 major economies.
It was founded in 1999 with the aim of studying,
reviewing, and promoting high-level discussion of
policy issues pertaining to the promotion of
international financial stability.
The G20 heads of government or heads of state have
periodically conferred at summits since their initial meeting
in 2008, and the group also hosts separate meetings
of finance ministers and central bank governors.

The members include 19 individual countries

Argentina, Australia, Brazil, Canada, China, France,

Germany, India, Indonesia, Italy, Japan, South
Korea, Mexico, Russia, Saudi Arabia, South
Africa, Turkey, the United Kingdom and the United
Statesalong with the European Union (EU).

BRICS
BRICS is the acronym for an association of five major emerging

national economies: Brazil, Russia, India, China and South Africa.

The BRICS members are all leading developing or newly

industrialized country countries, but they are distinguished by

their large, sometimes fast-growing economies and significant
influence on regional affairs; all five are G-20 members.
The BRICS Policy Planning Dialogue was successfully

concluded on 26 July 2016 in Patna, Bihar. There were

fruitful exchanges on strategic assessments of
international situation and the regional situation of each
country and their trends.

India data

Types of the economies

Capitalist or free enterprise economy: The capitalist or

free enterprise economy is the oldest form of economy. Earlier

economists supported the policy of laissez fair meaning leave
free. They advocated minimum government intervention in
the economic activities. Examples: USA, Canada, UK
Socialist or centrally planned economy: In the socialist

or centrally planned economies all the productive resources

are owned and controlled by the government in the overall
interest of the society. A central planning authority takes the
decisions. Examples: Netherlands, China, etc

Types of the economies

Mixed economy: A mixed economy combines the

best features of capitalism and socialism. Thus mixed

economy has some elements of both free enterprise
or capitalist economy as well as a government
controlled socialist economy. The public and private
sectors co-exist in mixed economies. Examples:
India

India is a Sovereign, Socialist, Secular, Democratic,

Republic.
Sovereign means an independent nation.
Socialist implies social and economic equality for all Indian
citizens. This guarantees equal opportunity and equal social
status.
Secular implies freedom to choose your religion
Democratic means the government is a democratically elected,
the head of the government (Prime Minister) is elected by the
people.
Republic means the head of the state (President) is not a
hereditary King or Queen but indirectly elected by the people

Sectors of an economy
Primary sector extraction of raw materials

mining, fishing and agriculture.

Secondary / manufacturing sector concerned
with producing finished goods, e.g. factories making
toys, cars, food, and clothes.
Service / tertiary sector concerned with
offering intangible goods and services to consumers.
This includes retail, tourism, banking, entertainment
and I.T. services.

Sectoral composition in 2014

According to CIA factbook estimates the sector wise

Indian GDP composition in 2014 are as follows :

Agriculture (17.9%), Industry (24.2%) and Services
(57.9%).

At previous methodology,

composition of Agriculture & allied,

Industry, and Services sector was
51.81%, 14.16%, and 33.25%,
respectively at current prices in
1950-51.

Agriculture Sector
Over 58 per cent of the rural households depend on

agriculture as their principal means of livelihood. Agriculture,

along with fisheries and forestry, is one of the largest
contributors to the Gross Domestic Product (GDP).
As per estimates by the Central Statistics Office (CSO), the
share of agriculture and allied sectors (including agriculture,
livestock, forestry and fishery) was 15.35 per cent of the Gross
Value Added (GVA) during 201516 at 201112 prices.
India is the largest producer, consumer and exporter of spices
and spice products. India's fruit production has grown
faster than vegetables, making it the second largest fruit
producer in the world.

Agriculture Sector
India's horticulture output, comprising fruits,

vegetables and spices, has reached to a record high of

283.5 million tonnes (MT) in 2014-15. It ranks
third in farm and agriculture outputs.
The Government of India has allocated Rs 200 crore

(US$ 29.9 million) for electronically linking 585

major wholesale agriculture markets across the
country, thereby creating a National Agriculture
Market (NAM). in July 2015 for three years

Manufacturing Industry
Manufacturing has emerged as one of the high growth

sectors in India. Prime Minister of India, Mr Narendra Modi,

had launched the Make in India program to place India
on the world map as a manufacturing hub and give global
recognition to the Indian economy.
Indias ranking among the worlds 10 largest manufacturing
countries has improved by three places to sixth position in
2015#.
The Government of India has set an ambitious target of
increasing the contribution of manufacturing output to 25
per cent of Gross Domestic Product (GDP) by 2025, from 16
per cent currently.

Services Sector
The services sector is not only the dominant sector in Indias

Gross Domestic Product (GDP), but has also attracted

significant foreign investment flows, contributed significantly
to exports as well as provided large-scale employment.
Indias services sector covers a wide variety of activities such as
trade, hotel and restaurants, transport, storage and
communication, financing, insurance, real estate,
business services, community, social and personal
services, and services associated with construction.
Indian service sector grew at approximately 8 per
cent per annum and contributed to about 64 per cent
of India's GDP in FY 2015-16#.

Services Sector
The services sector is the key driver of Indias economic

growth.
The Indian telecommunication services market is

expected to grow by 10.3 per cent year-on-year to reach

US$ 103.9 billion by 2020##.
By December 2016, the Government of India

plans to take mobile network to nearly 10 per

cent of Indian villages that are still
unconnected.

Rates:
Per capita income: Per capita income or average

income measures the average income earned per person

in a given area (city, region, country, etc.) in a specified
year. It is calculated by dividing the area's total income
by its total population.
Life Expectancy rate: Life expectancy is calculated as

the number of years a person is expected to survive

based on the statistical average. The starting point used
to calculate life expectancy is age-specific death rates
among members of the relevant population.

Rates:
Infant mortality rate: The infant mortality rate

(IMR) is the number of deaths of infants under one

year old per 1,000 live births. This rate is often used
as an indicator of the level of health in a country.
2015 Data (per 1000 live births)
India: 41
USA: 5.8
UK: 4.3
China: 12.44

BASIS FOR
ECONOMIC
COMPARISON GROWTH

ECONOMIC
DEVELOPMENT

Meaning

Economic Growth is
the positive change
in the real output of
the country in a
particular span of
time.

Economic Development involves rise

in the level of production in an
economy along with the
advancement of technology,
improvement in living standards
and so on.

Concept

Narrow

Broad

Scope

Increase in the
Improvement in life expectancy rate,
indicators like GDP,
infant mortality rate, literacy rate
per capita income
and poverty rates.
etc.

Term

Short term process

Which kind of changes Quantitative

are expected?
changes
When it arises?

In a certain period
of time.

Long term process

Qualitative and qualitative changes
Continuous process.

Economic factors
1) Capital Formation:
) This means investment in the purchase of industrial

machinery, buildings, means of transport, etc.

) The strategic role of capital in raising the level of production has

traditionally been acknowledged in economics. It is now universally

admitted that a country which wants to accelerate the pace of growth
should save a high ratio-of its income, with the objective of raising the
level of investment.
) Whatever be the economic system, a country cannot hope to achieve

economic progress unless a certain minimum rate of capital accumulation

is realized. If some country wishes to make spectacular strides,
it will have to raise its rate of capital formation still higher.

Economic factors
2) Natural Resources:
The principal factor affecting the development of an
economy is the natural resources.
Among the natural resources, the land area and the
quality of the soil, forest wealth, good river system,
minerals and oil-resources, good and bracing climate,
etc., are included.
For economic growth, the existence of natural resources
in abundance is essential. A country deficient in natural
resources may not be in a position to develop rapidly.

Economic factors
There are countries in the world which do not have

abundant resources, yet they have made rapid

progress in growth by superior technology, new
researches and higher knowledge.
Japan, Switzerland, South Korea are

resource poor countries, yet they have made

rapid progress in economic growth through
advanced technology and new discoveries.

Economic factors
3) Marketable Surplus of Agriculture:

Increase in agricultural production accompanied by a rise in

productivity is important from the point of view of the development of

a country. But what is more important is that the marketable surplus of
agriculture increases. The term marketable surplus refers to the
excess of output in the agricultural sector over and above
what is required to allow the rural population to subsist.
The importance of the marketable surplus in a developing economy

emanates from the fact that the urban industrial population subsists on
it. With the development of an economy, the ratio of the
urban population increases and increasing demands are
made on agriculture for foodgrains. These demands must be
met adequately; otherwise the consequent scarcity of food in urban
areas will arrest growth.

Economic factors
In case a country fails to produce a sufficient

marketable surplus, it will be left with no choice

except to import foodgrains which may cause a
balance of payments problem. Until 1976-77,
India was faced with this problem precisely.
In most of the years during the earlier planning
period, market arrivals of foodgrains were not
adequate to support the urban population.

Economic factors
4) Conditions in Foreign Trade:
The classical theory of trade has been used by
economists for a long time to argue that trade between
nations is always beneficial to them.
According to this theory every country should

specialize in production. It should export those

goods in which it has greater comparative
advantage and import those goods in the
production which it has greater comparative
disadvantage.

Economic factors
In the existing context, the theory suggests

that the presently less developed countries

should specialize in production of primary
products as they have comparative cost
advantage in their production.
The developed countries, on the contrary, have

a comparative cost advantage in

manufactures including machines and
equipment and should accordingly specialize
in them.

Economic factors
5) Economic System:
The economic system and the historical setting of a

country also decide the development prospects to a

great extent.
This involves the financial stability, technologically

advanced, etc.
There was a time when a country could have a laissez faire

economy and yet face no difficulty in making economic progress.

In todays entirely different world situation, a country would find

it difficult to grow along the Englands path of development.

Economic factors
6) Technological advancement: Technological
innovations and advancements are important for the
primary, secondary and tertiary sector.

Non economic factors

1) Human Resources:
Human resources are an important factor in economic
development.
Man provides labour power for production and if in a country
labour is efficient and skilled, its capacity to contribute to growth
will decidedly be high.
The productivity of illiterate, unskilled, disease ridden and
superstitious people is generally low and they do not provide
any hope to developmental work in a country. But in case human
resources remain either unutilized or the manpower management
remains defective, the same people who could have made a
positive contribution to growth activity prove to be a burden on
the economy.

Non economic factors

2) Technical Know-How and General
Education:
It has never been, doubted that the level of technical
know-how has a direct bearing on the pace of
development. As the scientific and technological
knowledge advances, man discovers more and more
sophisticated techniques of production which
steadily raise the productivity levels.

Non economic factors

3) Social Organisation:
Mass participation in development programs is a pre-condition
for accelerating the growth process. However, people show
interest in the development activity only when they
feel that the fruits of growth will be fairly distributed.
Experiences from a number of countries suggest that whenever
the defective social organisation allows some elite groups to
appropriate the benefits of growth, the general mass of people
develop apathy towards States development programs. Under
the circumstances, it is futile to hope that masses will
participate in the development projects undertaken
by the State.

Non economic factors

4) Corruption:
Corruption is rampant in developing countries at various levels
and it operates as a negative factor in their growth process. Until
and unless these countries root-out corruption in their
administrative system, it is most natural that the
capitalists, traders and other powerful economic
classes will continue to exploit national resources in
their personal interests.
The regulatory system is also often misused and the licenses are
not always granted on merit. The art of tax evasion has been
perfected in the less developed countries by certain
sections of the society and often taxes are evaded with
the connivance of the government officials.

Non economic factors

5) Desire to Develop:
Development activity is not a mechanical process.
The pace of economic growth in any country depends
to a great extent on peoples desire to develop.
If in some country level of consciousness is low and
the general mass of people has accepted poverty as
its fate, then there will be little hope for
development.

Inter regional variations

On the basis of development, Prof NJ Kurion has

divided the country in two parts:

Regions situated in the centre of India: Bihar,

Chhattisgarh, Orissa, Jharkhand are less developed

and backward.
Regions situated at the periphery:

Maharashtra, Tamil Nadu, Gujarat, etc are more

developed.

Gross State Domestic Product (GSDP) : 2014- 2015

(Rupees in lakh crores)

Highest GSDP states

1. Maharashtra: 16.8
2. Tamil Nadu: 9.76
3. Uttar Pradesh:

9.76
4. West Bengal: 8.00
5. Gujarat: 7.65

Lowest GSDP states

1. Mizoram: 0.1
2. Andaman & Nicobar

Islands: 0.062
3. Dadra and Nagar
Haveli: 0.0244
4. Daman and Diu:
0.01059
5. J & k (0.87), Assam

(1.59), Jharkhand (1.73)

Types of countries in terms of development

Developed nations, which can generally be

categorized as countries that are more industrialized

and have higher per capita income levels.
Examples: United States, Canada, Japan, Republic of
Korea, Australia, New Zealand, Scandinavia,
Singapore, Taiwan, Israel, countries of Western
Europe, and some Arab states.
The populations of developed countries are generally
more stable and it is estimated that they will grow at
a steady rate of around 7% over the next 40 years.

Types of countries in terms of development

Developing nations, which is a broad term that

includes countries that are less industrialized and have

lower per capita income levels.
Examples: India, Mexico, China, Indonesia, Jordan,
Thailand, etc.
Underdeveloped nations are those where resources
are not used to their full socio-economic potential, with
the result that local or regional development is slower in
most cases than it should be, specially compare with the
investment and innovation in countries that surround it.
Example: Afghanistan, South Africa, etc

Features of India as a developing economy

1. PRE-DOMINANCE OF AGRICULTURE:
) Agriculture is the main sector of Indian economy

which is in total contrast to the economic structure

of a developed economy.
) Over 50 % of the total population is engaged in
agricultural activities while the picture is absolutely
different in advanced countries.
) Unemployment, poverty, low productivity, lack of
irrigation facility are the main problems of
agriculture.

Features of India as a developing economy

2. HIGH POPULATION:
Population is a major factor influencing the nature of
a country's economy. Over population creates
complex economic problems.
India is the second largest populated country in the

world having population of 238 million in 2001 and

1138 million in 2011. It means 17,64% population has
been increased since 2001 to 2011.
Current population is 1.252 billion.

Features of India as a developing economy

The population pressure is the result of two

forces that is high birth rate and lower death

rate. As per 2011 census, India's birth rate was 23 and
death rate was 7.
According to 2013 estimation, Birth rate 20.22

births/1,000 population ,Death rate 7.4

deaths/1,000 population.
High population rate is the main problem that India has

been facing since years.

Features of India as a developing economy

3. UNDERUTILIZED NATURAL RESOURCES:
It has been stated that India is a rich country
inhabited by poor people.
It means that the country possesses abundant stock

of natural resources but the problem is that these

resources are not fully utilized for the production of
material good and services.

Features of India as a developing economy

4. LOW HUMAN DEVELOPMENT INDEX:
The Human Development Index (HDI) is a
composite statistic of life expectancy, education, and
income per capita indicators, which are used to rank
countries into four tiers of human development.
In the developed countries, people are getting

3600 calories through food but Indians are not

getting even 2400 calories through food. It is a
great draw back relating total intake.

Features of India as a developing economy

India's literacy rate is 74 % (2011) but we can say 26 %

people are still illiterate. Rate was 12% by the end of

British rule in 1947.
India's life expectancy is 68.45 (2015) at live birth and

developed countries life expectancy is more than 75.

India comes under : Medium HDI.

Countries under Low HDI: Pakistan, Nepal, Nigeria, etc

Features of India as a developing economy

5. LACK OF INFRASTRUCTURE FACILITY:
infrastructure is divided into two parts :Physical
infrastructure and Social infrastructure
Physical infrastructure: which refers to road,
electricity, banking, transportation, communication,
insurance, energy etc. Physical infrastructure is related to
development process and it is closely linked with GDP.
Social infrastructure: Which refers to education,
health, housing, drinking water and sanitation. social
infrastructure related to human resource development
and it is not directly or indirectly related to GDP.

Features of India as a developing economy

6. Low per capita income:
Less developed economy is characterized by low per capital
income. India per capital income is very low as compared to
the advanced countries.
India not only the per capita income is low but also
the income is unequally distributed.
During 1960-1980, developed countries grew at a
faster rate than the Indian Economy but during 1990
2010, Indian economy has grown at a faster rate
than the developed economies. Even, then the
difference between the developed countries and
India is quite large.

Features of India as a developing economy

7. Low Rate of Capital Formation:
In backward economics like India, the rate of capital
formation is also low.
Capital formation mainly depends on the
ability and willingness of the people to save.
Since the per capita income is low and there is maldistribution of income and wealth the ability of the
people to save is low in lesser developed countries
for which capital formation is very low .

Features of India as a developing economy

8. WIDE SPREAD UNEMPLOYMENT:
Unemployment in India is a direct outcome of the
rapidly increasing population.
More people need more jobs but the less developed
country can not accommodate them.
There is larger unemployed and under employment is
another important feature of Indian economy.
It is not possible to provide gainful employment the
entire population. Lack of job opportunities disguised
unemployed is created in the agriculture fields.

Features of India as a developing economy

Unemployment rate of India 2016 july (monthly)
India9.2%
Urban11.0%
Rural8.3%

Unemployment rate among men increased to

4.1 per cent in 2013-14, from 4 per cent in

2012-13. Among women, it increased to 7.7 per
cent in 2013-14, from 7.2 per cent in 2012-13.

Features of India as a developing economy

9. TECHNOLOGICAL BACKWARDNESS: is
another feature of Indian economy.
India is less advanced in technology as compared to
developed countries.
As a result developed countries are better in
production than India.
India is facing backward and outdated technology.

Features of India as a developing economy

10. POVERTY:
Majority of people in India have low levels of income and
poverty is mostly reflected in low level income people.
Lack of educational and health facilities, poor hygienic living
conditions, criminal environment, lack of infrastructural
facilities affect on poverty.
India has reduced its poverty rate to 12.4 per cent
(2015) from the 2011-12 estimate of 21 per cent,
according to new data released by World Bank, which
identified rural electrification as an important driving
factor for everything from greater rural spending to schooling
for girls.

Features of India as a developing economy

Against the earlier estimate of 269 million

people living below the poverty line,

according to government data, India now
has 172 million people, although the World
Bank revised the line upwards.

Features of India as a developing economy

11. Maldistribution of assets/ wealth Or Income Inequality:
Asset Group

Rural %
Households

Rural %
assets

Urban %
Households

Urban %
Assets

Less than Rs
20000

27

2.4

33.5

1.4

Rs 20000 to
50000

23.8

7.5

17.2

3.9

14

16

Rs 50000 to
100000

20.9

Rs 100000 to
250000

18.8

27.3

19

20.8

Rs 250000
and above

9.6

48.8

14.2

65.8

All classes

100

100

100

100

Features of India as a developing economy

Previous data Source: RBI Bulletin , May 1992
The mal distribution of wealth or assets is the

biggest cause of the Income inequality in India.

Features of India as a developing economy

12. Low level of living of an average Indian:
2100 calories is the minimum intake for sustaining. In 2012,

the Indian government stated 21.9% of its population is below

its official poverty limit. So , it is difficult to estimate that the
poor will get a minimum intake of even 2100 calories.
In India 44% of children under the age of 5 are underweight.

72% of infants and 52% of married women have anaemia.

Research has conclusively shown that malnutrition during
pregnancy causes the child to have increased risk of future
diseases, physical retardation, and reduced cognitive abilities.

Sources : Census of India 2001

Total

Rural

Urban

Permanent

51.8

41.1

79.3

Semi Permanent

30

35.7

15.4

Temporary

34.9

23.2

5.2

total

100

100

100

Underdevelopment
In economics, underdevelopment is

when resources are not used to their

full socio-economic potential, with the result
that local or regional development is slower
in most cases than it should be, specially
compare with the investment and
innovation in countries that surround it.