1

STRUCTURE OF
ECONOMY AND HUMAN
RESOURCE IN INDIA
Introduction
The word Economics originates from the Greek word Oikonomikos; Oikos (means Home) + Nomos (means
Management) means Home management. Economics is the study of how people and society end up choosing, with or
without the use of money, to employ scarce productive resources that could have alternative uses to produce various
commodities over time and distributing them for consumption, now or in the future, among various persons or groups in
society. It analyses costs and benefits of improving patterns of resource allocation. The term Economy means the state
of country or region in terms of the production and consumption of goods and services and the supply of money.

Types of Economy

Socialist

Capitalist

Mixed

Social ownership
of means
of Production

Private ownership
of means of production
USA, UK, France, etc

USSR, China
Public - Private
Market -based
ownership
allocation
of Industry
+ with Economic
Planning

Free- markets
+

with state

interventionism

India

debenture
to
/

Shares,

fro

bonds
ountries
&
foreig
c

Closed

No economic
relation with rest
of the world

Economy

Borrows
& Lends
Free
Open
movement
of people

Maintain
bilateral/multila al

(2) Low per Capita Income

According to IMF GDP per capital of India in 2014 at
current prices is $1,627. India is the 9th largest economy
of the world. But, due to its huge population of more than
1.26 billion, India is at 145th position in term of GDP Per
capita. Per capita income of India is 6.69 times lower
than worlds average around of $10,880. This figure is
68.66 times lower than richest country of world and
6.5 times greater than poorest country of the world. India
is at 34th position in the list of Asian countries. On the
basis of PPP, GDP, per capita of India stands at 5,855
International Dollar in 2014. GDP (PPP) per

capita of world is 15,189 Int. $.

Buys/Sells

(a) a rapidly and technologically progressive economy by

democratic means; and
(b)a social order based on justice, offering equal
opportunity to every citizen of the country.

flow
Free
&
goods
services
of

2014-15
Per capita Net national Income at current prices - `88533
Per capita Income constant prices ( 2011-12 prices) `74193 GDP Per Capita at current - `98,983
GDP Per Capita at 2011-12 price - `84, 009.

(3) Dominance

of

Agriculture

and

Heavy

Population Pressure on Agriculture

ter

relationships

Indian Economy
Salient Features of Indian Economy
The salient features of Indian Economy include the followings:

In India, almost 60-70% of the total population still

resides in rural areas and hence they depend on
agriculture for their livelihood.

(1) Mixed Economy

India is a mixed economy. In a mixed economy, public

sector (government-owned) business enterprises exist
alongside the private sector to achieve a welfare state
with socialistic pattern of society. Ever since

independence, Indias economic development has been

guided by the twin objectives of developing:

(4) Over-Population
India is over populated. In every decade Indian
population gets increased by about 20%. During 2001-11,
population increased by 17.6%. With this high growth
rate of population about 1.7 crore new persons are added
to Indian population every year. According to 2011
census, the total Indian population stands at a high level
of 121.02 crore which is 17.5% of the worlds total
population which is second largest population of the
world. To maintain this 17.5% of world population India
holds only 2.42% of total land area of the world.

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(5) Unbalanced Economic Development

State of the Economy 2014-15

India has not yet achieved the goal of balanced economic

development. According to latest data available about
64% of total labour force is dependent on agriculture,
16% on industries and the rest about 20% on trade,
transport and other services.

An Overview

(6) Low rate of capital formation

Another basic characteristic of the Indian economy is the
existence of capital deficiency which is reflected in
two ways - firstly, the amount of capital per head
available is low; and secondly, the current rate of capital
formation is also low. Gross Fixed Capital Formation in
India increased to 4975.22 INR billion in the third
quarter of 2014 from 4957.25 INR billion in the second
quarter of 2014. Gross Fixed Capital Formation in India
averaged 3595.81 INR billion from 2001 until 2014,
reaching an all time high of 5356.22 INR billion in the
first quarter of 2014 and a record low of 2021.90 INR
billion in the first quarter of 2002.

1. GDP Growth Rate

2. Export growth

3. Import growth

4. Fiscal Deficit
5. Inflation (WPI)
6. Foreign Exchange
Reserves

7.4 %
2.4 % (US$265 billion)
(April-Jan.)
2.2% (US$ 383.4 billion)
(April-Jan.)
4.0%
3.4% (April-Dec.)
US $ 330.2 billion
(6 Feb. 2015)

* New Base year of National Accounts is 2011-12

Structure Composition of Indian Economy

There are 3 major sectors of Indian economy- the primary sector,
the secondary and the tertiary sector.

(7) Lack of Infrastructure Facility

There is a lack of physical infrastructure (i.e.
road,electricity, banking, transportation, insurance,
energy) and social infrastructure(i.e. education, health,
housing, drinking water, sanitation) that hinders the
development process of a country.

Manufactured goods used as Inputs

Primary

Sector

Provide
Secondary
Natural Products Sector

Provide
Tertiary
Infrastructure Sector

Services that help in production

Sector

(8) Poor Economic Organisation

Activity
Agriculture and Allied Sector

Another important feature of the Indian economy

is poor economic organisation. Certain institutions
necessary for economic development are not adequately
developed. For instance, to mobilise savings and more
especially the savings of the rural sector, the creation and
development of financial institutions is essential.
India suffers from inadequacy of financial institutions
in rural areas. Similarly, India being a country of a large
number of small farmers, the development of certain
agencies of credit for granting loans to farmers on easy
terms is needed. Likewise, to provide medium and longterm loans to industries for the development of industrial
finance corporation is quite necessary. There is a
great scarcity of skilled and efficient administrators
and managers.

Primary
Sector

Forestry
Fishing
Mining &Quarrying

Secondary
Sector
or
Industrial sector

Manufacturing
Electricity, Gas
and Water Supply
Construction
Trade, Hotels and Restaurants
Transport

Tertiary
Sector or Service
Sector

Storage
Communication
Financing, (Banking Insurance)
Real Estate and Business Services
Community, Social, Personal and
other Services

Percentage Share of Sectors in GVA at factor cost at current Prices Sector

2004-05 Series

2011-12 Series

2011-12
2012-13
2013-14
2011-12
2012-13
2013-14
2014-15
1. Agriculture & Allied Activities
17.9
17.5
18.2
18.9
18.7
18.6
17.6
2. Industry
27.2
26.2
24.8
32.9
31.7
30.5
29.7
3. Service
54.9
56.3
57.0
48.2
49.6
50.9
52.7
Source : CSOs press Releases of 30 january 2015 & 9 February 2015 on New Series Estimates of National Income.

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The Central Statistics Office (CSO), Ministry of Statistics

and Programme Implementation have released the advance
estimates of GDP growth rates for 2015-16 and Q1, Q2, Q3 of
2015-16 at constant (2011-12) and current prices are given
below:
Growth Rates of GDP
Constant
Current
Prices (2011-12)
Prices
Annual 2015-16 (Advance)
7.6
8.6
Q1 2015-16(April-June)
7.6
8.7
Q2 2015-16(July-Sep)
7.7
6.4
Q3 2015-16(Oct-Dec)
7.3
9.2

National Income Of India

National income measures the net value of goods and services
produced in a country during a year and it also includes net earned
foreign income. In other words, a total of national income
measures the flow of goods and services in an economy.
National income is a flow not a stock. As contrasted with
national wealth which measures the stock of commodities held by
the nationals of a country at a point of time, national income
measures the productive power of an economy in a given period
to turn out goods and services for final consumption.

GNP = GDP + NFIA

WhereNFIA = Net Factor Income from abroad
also NFIA = Factor incomes received from abroad
Factor income paid to abroad.
It is to be noted here that in a closed economy which
does not deal with outside world, has no NFIA, i.e. its
NFIA is equal to Zero. Hence, for such countries, GDP =
GNP
Gross Domestic Product (GDP)
It is the total money value of all final goods and
services produced within the geographical boundaries of
the country during a given period of time. So, domestic
product emphasis the total output which is raised within the
geographical boundaries of the country, national product
focuses not only on the domestic product but also on goods
and services produced outside the boundaries of

3.

NNP = GNP Depreciation.

4.

The various concepts of national income are as follows:

1. Per Capita Income
It is a measure of the amount of money that is being
earned per person in a certain area.
PCI =

2.

National Income
GNP is based on market prices of produced goods which
includes indirect taxes and subsidies. NNP can be
calculated in two ways(i) at market prices of goods and services
(ii) at factor cost
When NNP is obtained at factor cost, it is known
as National Income. National Income is calculated by
subtracting net indirect taxes (i.e. total indirect taxsubsidy) from NNP at market prices. The obtained value
is known as NNP at factor cost or National income. So,
NNP at factor cost or National Income
= NNP at market price (Indirect Taxes Subsidy)

Concepts of National Income

National Income
Population
Gross National Product (GNP)
Gross National Product refers to the money value of total
output or production of final goods and services
produced by the nationals of a country during a given
period of time, generally a year.
In the calculation of GNP, we include the money value of
goods and services produced by nationals outside the
country. Hence, income produced and received by
nationals of a country within the boundaries of foreign
countries should be added in Gross Domestic Product
(GDP) of the country. Similarly, income received by
foreign nationals within the boundary of the country
should be excluded from GDP.
In equation form:
GNP = GDP + X M,
where,
X = Income earned and received by nationals within
the boundaries of foreign countries.
M = Income received by foreign nationals within the
country.
If X = M, then GNP = GDP.
Similarly, in a closed economy
X=M=0
then also GNP = GDP
In equation form :

a nation.
Net National Product (NNP)
NNP is obtained by subtracting depreciation value (i.e.
capital stock consumption) from GNP.
In equation form :

NNP(mp) Indirect Tax + Subsidy.

5.

Personal Income
Personal income is that income which is actually
obtained by nationals.
Personal income is obtained by subtracting corporate
taxes and payments made for social securities provision
from national income and adding to it government
transfer payments, business transfer payments and net
interest paid by the government. So,
Personal Income = National income undistributed
profits of corporation payments for social
security provisions corporate tax + government
transfer payments + Business transfer payments + Net
interest paid by government.
It should always be kept in mind that personal income
is a flow concept.

6.

Personal Disposable Income

When personal direct taxes are subtracted from personal
income, the obtained value is called disposable personal
income (DPI). So,
Disposable personal income
DPI = [Personal income] [Direct Taxes]

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A Graphical Representation of relationship

between various measures.
GNPMP

NNPFC = NNPMP Indirect taxes

+ Subsidier

NNPMP = GNPMP Depreciation

Personal Income = NNPFc

+Net transfer payment
Disposable income
= Personal Income Direct Taxes

Methods of Measuring National

Income
National Income of a country is calculated by following three
methods :
1. Product Method
In this method net value of final goods and services
produced in a country during a year is obtained and the
total obtained value is called total final product. This
represents Gross Domestic Product (GDP). Net income
earned in foreign boundaries by nationals is added and
depreciation is subtracted from GDP.
2. Income Method
In this method, a total of net incomes earned by working
people in different sectors and commercial enterprises is
obtained.
Symbolically : National Income = total Rent + Total
Wages + total Interest + Total Profit.
3.

Consumption Method
It is also called expenditure method. Income is either
spent on consumption or saved. Hence national income is
the addition of total consumption and total savings.
In India a combination of production method and income
method is used for estimating national income.
Symbolically : N.I = C + I + G + (X M)
Where,
C= Total consumption expenditure
I = Total Investment Expenditure
G = Total Govt. Expentiture.
X = Export
M = Import

After independence, the Government of India appointed the

National Income Committee in August 1949 under the
chairmanship of Prof. P.C. Mahalanobis, to compile
authoritative estimates of national income. For further
estimation of national income, the government established
Central Statistical Organisation (CSO) which now regularly
publishes national income data.
CSO & NSSO to be Merged :
The government is planning to merge Central Statistical
Organisation (CSO) and National Sample Survey
Organisation (NSSO) for promoting statistical network in
the country. The newly merged unit will be named as
National Statistical Organisation (NSO). The head of the
organisation will be designated as Chief of Statistician of
India and will be having the rank of Chief Secretary.

Indicators of Economic Development

The major indicators to increase the levels of development are :

(i)

Net National Product (NNP)

It is defined as the total output produced by a
country in one financial year. It can be computed by
subtracting depreciation from GNP. NNP is also called
as National Income.
(ii) Per Capita Income
A high per capital income indicates a better standard of
living and thus, economic development on the whole.
Further, a rise in per capita income will always mean a
rise in aggregate real output.
(iii) Quality of Life Index (QLI) : The Index of Quality of
life depends upon mainly three factors, i.e. life expected,
Basic Literacy ad Infant Morality Rate. Most of the
countries with low per capita GNP tends to have to QLI
and vice-a-versa.
(iv) Human Development Index (HDI) : It is one of the
most recent and significant indicator of economic
development of a country. It is a composite of three
indicators, i.e. Life Expectancy Index (LEI); Education
Attainment Index (EAI) and Standard of Living Index.
(HDI) ranks countries in relations to each other. It can be
computed by using following formula :
3

HDI : LEIEAISLI

Estimates of National Income in India

Population

In 1868, the first attempt was made by Dada Bhai

Naoroji. He, in his book Poverty and Un-British Rule in
India. estimated Indian per capita annual income at a level of
Rs. 20.
Some Other economists followed it and gave various estimates
of Indian national income, some of these estimates are as
follows :
Findlay Shirras ( 1911)
- `49
- `44.30
Wadia & Joshi ( 1913-14)
Dr. V.K.R.V. Rao (1925-29)
- `76

Theory of Demographic Transitions

Demography is the scientific study of human population.
The relationship between population growth and economic
development can be explained by the Theory of Demographic
Transition for contemporary developed nations. There are three
stages of population growth.
(i) First stage of stable or slow population growth
Due to the high death rate which nullified the high
birth rate. In this stage, these economies were primitive
and primarily agrarian, with widespread illiteracy,

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