Ch-1
OVERVIEW OF INDIAN ECONOMY
Introduction
Every economy in the world has distinctive characteristics that identify it.
Economies are compared based on these features.
India gained independence on 15th August 1947, marking the end of British rule.
By 15th August 2013, India had completed 66 years of self-rule.
This duration is significant for evaluating India's economic performance and comparing it with other nations.
Objectives
Upon completion of this lesson, learners will be able to:
Describe the characteristics or features of the Indian economy.
Explain the problems faced by the Indian economy.
Explain the role of agriculture in India.
Describe the growth of industry in India.
FEATURES OF INDIAN ECONOMY
The main characteristics of the Indian economy include:
Low per capita income.
Heavy population pressure.
Dependence on agriculture.
Poverty and income inequality.
Higher level of capital formation (a positive feature).
Planned economy.
1. Low Per Capita Income
India is recognized globally for its low per capita income.
Per capita income is defined as the ratio of national income to the population, indicating the average annual earnings of an Indian citizen.
As of 2012-2013, India's per capita income was estimated at ₹ 39,168, equivalent to about ₹ 3,264 per month.
Comparison with other countries reveals that:
The per capita income of the USA is 15 times that of India.
The per capita income of China is over three times that of India.
2. Heavy Population Pressure
India is the world’s second most populated country, following China.
According to the 2011 census, India's population exceeded 121 crores.
The population growth rate from 1990-2001 was 1.03%.
The rapid population increase is attributed to a sharp decline in death rates, while birth rates have remained high.
Definitions:
Death rate: Number of deaths per thousand individuals.
Birth rate: Number of live births per thousand individuals.
In 2010:
Birth rate was 22.1 per thousand.
Death rate was 7.2 per thousand.
A low death rate indicates improved public health, while high birth rates contribute to population growth, placing significant pressure on resources required for education, healthcare, and infrastructure.
3. Dependence on Agriculture
A significant portion of India's workforce relies on agriculture.
In 2011, about 58% of India's working population was engaged in agricultural activities.
However, agriculture contributed only 17% to India’s Gross Domestic Product (GDP).
Factors contributing to low agricultural productivity include:
Heavy population pressure on land, leading to inadequate per capita land availability.
Many agricultural workers are low-wage laborers due to limited land viability.
Lack of advanced technology and irrigation facilities.
Many agricultural workers are untrained or uneducated.
4. Poverty and Inequality
India has the highest number of poor individuals globally.
According to government reports from 2011-2012, around 269.3 million people were classified as poor, representing 22% of the total population.
A person is deemed poor if they cannot consume enough food to achieve minimum caloric intake:
2400 calories in rural areas.
2100 calories in urban areas.
Monthly income thresholds:
₹ 816 in rural areas.
₹ 1000 in urban areas.
This defines the poverty line:
About ₹ 28 in rural areas and ₹ 33 in urban areas per day.
Economic inequality results in wealth concentration:
The richest 5% of households control 38% of total wealth.
The poorest 60% control only 13% of wealth.
Unemployment is a primary contributor to poverty:
The labor force consists of adults willing to work.
Insufficient job creation leads to growing unemployment.
5. Higher Rate of Capital Formation
Upon independence, India struggled with inadequate capital stock for economic activities.
Economic activities require a portion of production to be saved and invested.
In the early years post-independence, savings were low due to high consumption levels among the poor.
Recent improvements have led to:
A saving rate of 31.7% in 2011.
Gross capital formation ratio of 36.6%.
Drivers of this growth include:
Increased savings in banks.
Higher consumption of durable goods.
Significant investments in public utilities and infrastructure.
6. Planned Economy
India operates as a planned economy, with development guided by a series of Five-Year Plans initiated in 1951-56.
Planning helps prioritize developmental goals and assess financial requirements.
The government mobilizes resources accordingly, ensuring cost-effective utilization.
India has completed eleven Five-Year Plans, with the twelfth currently in progress.
Post each planning period, a review analyzes achievements and shortcomings, informing subsequent plans.
Planning has contributed to India's recognition as a growing economy with a rising per capita income and as a significant market for diverse products.
ROLE OF AGRICULTURE IN INDIA
Agriculture remains a crucial sector, supplying food and raw materials.
At independence, 70% of the population relied on agriculture, contributing 56.6% to national income in 1950-51.
However, industrial and service sector growth has reduced agricultural dependence:
By 2012, labor engagement in agriculture fell to 51%.
Industry and service sectors grew from 11% and 15% in 1960, to 22.4% and 26.5% respectively by 2012.
Food grain production surged from 55 million tonnes in 1950-51 to 259 million tonnes in 2012-13, significantly reducing food grain imports.
Agriculture supports foreign exchange through exports, representing 12.3% of India's exports in 2011-12.
Major export items include tea, sugar, tobacco, spices, cotton, rice, fruits, and vegetables.
GROWTH OF INDUSTRY IN INDIA
The secondary sector (industry) is vital for economic activity.
Post-independence, the Indian government promoted industrialization via the Industrial Policy Resolution (IPR) in 1956, focusing on heavy industries led by the public sector.
Heavy industry strategy aimed to relieve agricultural burdens and enhance consumer goods production.
The second and third plan periods (1956-61 and 1961-66) saw substantial industrial growth due to public sector investment.
By the late 1960s, reduced industrial investment adversely affected growth rates.
Investment rebounded in the 1980s through enhanced infrastructure.
During the early 1990s, public sector undertakings faced issues of mismanagement, leading to policy adjustments promoting Liberalization, Privatization, and Globalization (LPG).
Post-1991 reforms aimed to strengthen industrialization by increasing competition and removing the rigid licensing system.
Growth phases in the 1990s were followed by slowdowns due to international competition and inadequate infrastructure.
A recovery occurred between 2002-2008, with an increase in the savings rate from 23.5% in 2001-2002 to 37.4% in 2007-2008.
However, post 2008-2009, industrial growth slowed, attributed to rising petroleum prices and interest rates.
INTEGRATED UNDERSTANDING
In this lesson, it has been learned that:
India is a developing economy with future growth potential.
It currently reports low per capita income and high population pressure.
The majority of the population remains reliant on agriculture.
There is significant absolute poverty, with a substantial wealth gap between rich and poor.
Positive features include a high savings rate and successful Five-Year planning.
TERMINAL EXERCISE
Short Answer Questions
State one positive and two negative features of the Indian economy.
Identify two reasons for low agricultural productivity in India.
What is the primary cause of population growth in India?
Why is India referred to as a planned economy?
Define the poverty line in rural areas.
Long Answer Questions
Explain the heavy population pressure in India.
What are two positive features of the Indian economy?
Argue whether India’s low per capita income is justified.
Describe India as an agricultural country.
Discuss the current situation related to poverty and inequality in India.
Elucidate the role of agriculture in the Indian economy.
Explain the growth of industrialization in India.
ANSWERS TO INTEXT QUESTIONS
1.1
(b) one third.
(a) 15 times.
(c) more than 121 crores.
(c) 22.1.
(a) 7.2.
(b) birth rate is more than death rate.
(d) 58%.
(c) 17%.
1.2
56.6%.
False.
12.3%.
Liberalization, Privatization, and Globalization.
Heavy industries.