Economics

Project
Project 1
Four Economic
Problems of
India
 contents
Economic problems ~ its definition
Four parts of the problem
In case of India
Unemployment ~ its definition
Its Types, causes and solution
poor education ~ its definition
its causes and solution
poverty ~ its definition
its causes and solution
conclusion
bibliography
 Economic Problems- Definition

The economic problem – sometimes called the basic or central

economic problem – asserts that an economy's
finite resources are insufficient to satisfy all
human wants and needs. It assumes that human wants are
unlimited, but the means to satisfy human wants are limited.
Three questions arise from this:
• What to produce?
• How to produce? &
• For whom to produce?
 What to produce?
'What and how much will you produce?' This question lies with
selecting the type of supply and the quantity of the supply,
focusing on efficiency.
e.g. "What should I produce more; laptops or tablets?"
 How to produce? Capital goods or consumer goods
'How do you produce this?' This question deals with the assets
and procedures used while making the product, also focusing
on efficiency.
For instance, "Should I hire more workers, or do I invest in more
machinery?"
 For whom to produce?
'To whom and how will you distribute the goods?' and 'For whom
will you produce this for?' arises from this question. This question
deals with distributing goods that have been produced, focusing
on efficiency and equity.
e.g. "Do I give more dividends to stock holders, or do I increase
worker wages?"
Economics revolve around these fundamental economic problems.
Overview: The economic problem is most simply explained by the
question: "How do we satisfy unlimited wants with limited
resources?" The premise of the economic problem model is that
wants are constant and infinite due to constantly changing
demands (often closely related to changing demographics of the
population), but resources in the world to satisfy human wants
are always limited to the amount of natural or human
resources available. The economic problem and methods to curb
it—revolve around the idea of choice in prioritizing which wants
can be fulfilled and what to produce for the economy.
Opportunity cost is the loss in terms of potential benefit had
another action been taken. We make choices every day. We have
to, as we have limited resources but so many wants. We
therefore must decide which wants to satisfy and which not to.
All choices involve giving something up. This leads to opportunity
cost. This issue of 'what to give up' exists not only for consumers
like us but for governments and businesses too...........................
Needs and wants
Needs are things or material items of peoples need for survival,
such as food, clothing, housing, and water. Everyone has a
different needs and wants. Until the Industrial Revolution, the
vast majority of the world's population struggled for access to
basic human needs.
Wants are effective desires for a particular product or for
something that can only be obtained by working for it. While the
fundamental needs of survival are key in the function of the
economy, wants are the driving force that stimulates demand
for goods and services. To curb the economic problem, economists
must classify the nature and different wants of consumers, as
well as prioritize wants and organize production to satisfy as
many wants as possible.
An assumption often made in mainstream neoclassical
economics (and methods that try to solve the economic problem)
is that humans inherently pursue their self-interest, and that the
market mechanism best satisfies the various wants different
individuals might have. These wants are often divided
into individual wants (which depend on the
individual's preferences and purchasing power parity)
and collective wants (which are the wants of entire groups of
people). Things such as food and clothing can be classified as
either wants or needs, depending on what type and how often a
good is requested.
FOUR PARTS OF THE PROBLEM
The economic problem can be divided into different parts, which
are given below.
Problem of allocation of resources
The problem of allocation of resources arises due to the scarcity
of resources, and refers to the question of which wants should be
satisfied and which should be left unsatisfied. In other words,
means "what to produce and how much to produce". More
production of a good implies more resources required for the
production of that good, and resources are scarce. These two
facts together mean that, if a society decides to increase
production of some good, it has to withdraw some resources
from the production of other goods. In other words, more
production of a desired commodity can be made possible only by
reducing the quantity of resources used in the production of
other goods.
The problem of allocation deals with the question of whether to
produce capital goods or consumer goods. If the community
decides to produce capital goods, resources must be withdrawn
from the production of consumer goods. In the long run,
however, investment in capital goods augments the production of
consumer goods. Thus, both capital and consumer goods are
important. The problem is determining the optimal production
ratio between the two.

Resources are scarce and it is important to use them as

efficiently as possible. Thus, it is essential to know if the
production and distribution of national product made by an
economy is maximally efficient. The production becomes efficient
only if the productive resources are utilized in such a way that
any reallocation does not produce more of one good without
reducing the output of any other good. In other words, efficient
distribution means that redistributing goods cannot make anyone
better off without making someone else worse off. (See Pareto
efficiency.)
The inefficiencies of production and distribution exist in all types
of economies. The welfare of the people can be increased if these
inefficiencies are ruled out. Some cost must be incurred to
remove these inefficiencies. If the cost of removing these
inefficiencies of production and distribution is more than the
gain, then it is not worthwhile to remove them.
The problem of full-employment of resources
In view of the scarce resources, the question of whether all
available resources are fully utilized is an important one. A
community should achieve maximum satisfaction by using the
scarce resources in the best possible manner—not wasting
resources or using them inefficiently. There are two types of
employment of resources:
 Labor-intensive
 Capital-intensive
In capitalist economies, however, available resources are not fully
used. In times of depression, many people want to work but
can't find employment. It supposes that the scarce resources are
not fully utilized in a capitalistic economy.
The problem of economic growth
If productive capacity grows, an economy can produce
progressively more goods, which raises the standard of living. The
increase in productive capacity of an economy is called economic
growth. There are various factors affecting economic growth. The
problems of economic growth have been discussed by numerous
growth models, including the Harrod-Domar model, the
neoclassical growth models of Solow and Swan, and the
Cambridge growth models of Kaldor and Joan Robinson. This
part of the economic problem is studied in the economies of
development.

IN CASE OF INDIA
Since 1991, the Indian economy has pursued free market
liberalization, greater openness in trade and increase investment
in infrastructure. This helped the Indian economy to achieve a
rapid rate of economic growth and economic development.
However, the economy still faces various problems and challenges.
Union Ministry for Labor and Employment claimed national
unemployment hovers around 3.7 percent in 2015-16.
However, the data is based on usual principal subsidiary status
(UPSS) approach that requires only 30 days of work in a year to
call the person employed. 77 percent of the families reportedly
have no regular wage earner and more than 67 percent have
income less than ₹11,000 per month. Around 58 percent of
unemployed graduates and 62 percent of unemployed post
graduates cited non-availability of jobs matching with
education/skill and experience as the main reason for
unemployment. As per the National Skill Development Mission
Document, as much as 97 percent of the workforce in India has
not undergone formal skill training. About 76 percent of the
households did not benefit from employment generating schemes
like MGNREGA, PMEGP, SGSY, SJSRY, etc.
A significant change in inequality in income and wealth is
possible only in a longer term prospective. Employment structure
of an economy is the normal instrument that can cause a change
in inequality either way i.e. an increase or a decrease in
inequality. Since the government functions within the
administrative and fiscal constraints, the target group
programmes normally have a marginal impact on income
redistribution. Income of labor enables flow of resources across
income classes of people and across the social and ethnic groups.
Flows of income across locations are influenced both by assets
available and modes of creating employment opportunities.
However, income generated by employment of migrant labor,
facilitates flow of resources across regions of a given regional
distribution of capital assets. Employment and equity of income
across classes of people and across regions are therefore, closely
related to each other in the long term.[1]
According to India Skills Report launched in the 3rd CII National
Conference on Skill Development, 96 percent were found
unemployable out of 100,000 candidates. The Report not only
captured the skill levels of talent pool but also brought out the
hiring estimates across major Industry sectors in the country.
The report also brings out a general trend amongst the
employers to look for skills rather than qualifications in
candidates.[2][3]According to NSS (66th Round) Report from
Ministry of Statistics and Programme
Implementation, Government of India published on 2013[4]
Your article library
Some of the economic problems of India are as follows:
1. Unemployment
2. Poor infrastructure
3. Large Budget Deficit
4. Rigid Labour Loss
UNEMPLOYMENT – ITS DEFINITION
Unemployment is the situation of actively looking for
employment but not being currently employed. The
unemployment rate is a measure of the prevalence of
unemployment and is calculated as a percentage. According to
International Labour Organisation Report, more than 200
million people globally or 6% of the world’s work force where
without a job in 2012.
Types of Unemployment in India:
1. Open Unemployment:
Open unemployment is a situation where in a large section of the
labor force does not get a job that may yield them regular
income. This type of unemployment can be seen and counted in
terms of the number of unemployed persons. The labour force
expands at a faster rate than the growth rate of economy.
Therefore all people do not get jobs.
2. Disguised Unemployment:
It is a situation in which more people are doing work than
actually required. Even if some are withdrawn, production does
not suffer. In other words it refers to a situation of employment
with surplus manpower in which some workers have zero
marginal productivity.
So their removal will not affect the volume of total production.
Overcrowding in agriculture due to rapid growth of population
and lack of alternative job opportunities may be cited as the
main reasons for disguised unemployment in India.
3. Seasonal Unemployment:
It is unemployment that occurs during certain seasons of the
year. In some industries and occupations like agriculture, holiday
resorts, ice factories etc., production activities take place only in
some seasons. So they offer employment for only a certain period
of time in a year. People engaged in such type of activities may
remain unemployed during the off-season.
4. Cyclical Unemployment:
It is caused by trade cycles at regular intervals. Generally
capitalist economies are subject to trade cycles. The down swing
in business activities results in unemployment. Cyclical
unemployment is normally a shot-run phenomenon.
5. Educated Unemployment:
Among the educated people, apart from open unemployment,
many are underemployed because their qualification does not
match the job. Faulty education system, mass output, preference
for white collar jobs, lack of employable skills and dwindling
formal salaried jobs are mainly responsible for unemployment
among educated youths in India. Educated unemployment may
be either open or underemployment.
6. Technological Unemployment:
It is the result of certain changes in the techniques of production
which may not warrant much labour. Modern technology being
capital intensive requires less labourers and contributes to this
kind of unemployment.
7. Structural Unemployment:
This type of unemployment arises due to drastic changes in the
economic structure of a country. These changes may affect either
the supply of a factor or demand for a factor of production.
Structural employment is a natural outcome of economic
development and technological advancement and innovation that
are taking place rapidly all over the world in every sphere.
8. Underemployment:
It is a situation in which people employed contribute less than
their capacity to production. In this type of unemployment
people are not gainfully employed. They may be employed either
on part-time basis, or undertake a job for which lesser
qualification is required. For example a Post Graduate may work
as a clerk for which only S.S.L.C. is enough.
9. Casual Unemployment:
When a person is employed on a day-to-day basis, casual
unemployment may occur due to short-term contracts, shortage
of raw materials, fall in demand, change of ownership etc.
10. Chronic Unemployment:
If unemployment continues to be a long term feature of a
country, it is called chronic unemployment. Rapid growth of
population and inadequate level of economic development on
account of vicious circle of poverty are the main causes for
chronic unemployment.
11. Frictional Unemployment:
Frictional unemployment is caused due to improper adjustment
between supply of labour and demand for labour. This type of
unemployment is due to immobility of labour, lack of correct and
timely information, seasonal nature of work. etc.
Causes of unemployment
The following are the main causes of unemployment:
(i) Caste System:
In India caste system is prevalent. The work is prohibited for
specific castes in some areas.
In many cases, the work is not given to the deserving candidates
but given to the person belonging to a particular community. So
this gives rise to unemployment.
(ii) Slow Economic Growth:
Indian economy is underdeveloped and role of economic growth
is very slow. This slow growth fails to provide enough
unemployment opportunities to the increasing population.
(iii) Increase in Population:
Constant increase in population has been a big problem in India.
It is one of the main causes of unemployment. The rate of
unemployment is 11.1% in 10th Plan.
(iv) Agriculture is a Seasonal Occupation:
Agriculture is underdeveloped in India. It provides seasonal
employment. Large part of population is dependent on
agriculture. But agriculture being seasonal provides work for a
few months. So this gives rise to unemployment.
(v) Joint Family System:
In big families having big business, many such persons will be
available who do not do any work and depend on the joint
income of the family.
Many of them seem to be working but they do not add anything
to production. So they encourage disguised unemployment.
(vi) Fall of Cottage and Small industries:
The industrial development had adverse effect on cottage and
small industries. The production of cottage industries began to
fall and many artisans became unemployed.
(vii) Slow Growth of Industrialization:
The rate of industrial growth is slow. Though emphasis is laid on
industrialization yet the avenues of employment created by
industrialization are very few.
(viii) Less Savings and Investment:
There is inadequate capital in India. Above all, this capital has
been judiciously invested. Investment depends on savings. Savings
are inadequate. Due to shortage of savings and investment,
opportunities of employment have not been created.
(ix) Causes of Under Employment:
Inadequate availability of means of production is the main cause
of under employment. People do not get employment for the
whole year due to shortage of electricity, coal and raw materials.
(x) Defective Planning:
Defective planning is the one of the cause of unemployment.
There is wide gap between supply and demand for labour. No
Plan had formulated any long term scheme for removal of
unemployment.
(xi) Expansion of Universities:
The number of universities has increased manifold. There are
385 universities. As a result of this educated unemployment or
white collar unemployment has increased.
(xii) Inadequate Irrigation Facilities:
Even after the completion of 9th five plans, 39% of total
cultivable area could get irrigation facilities.
Due to lack of irrigation, large area of land can grow only one
crop in a year. Farmers remain unemployed for most time of the
year.
(xiii) Immobility of labor:
Mobility of labor in India is low. Due to attachment to the
family, people do not go too far off areas for jobs. Factors like
language, religion, and climate are also responsible for low
mobility. Immobility of labor adds to unemployment.
Measures to Solve Unemployment Problem in India
A close reading of the Five-Year Plans reveals that in every Five-

Years Plan, employment expansion has been emphasized as an

objective of development.

Measures to Solve Unemployment Problem in India

A close reading of the Five-Year Plans reveals that in every Five-

Years Plan, employment expansion has been emphasized as an

objective of development. Despite all the plan pronouncements,

the backlog of unemployment has increased. This is because each

Plan was not even able to absorb the new entrants in the labour

force.

The following measures have been suggested for solving the

unemployment problem in our country:

1. A Change in the pattern of investment

The planning process in the initial stages gave importance to an

investment-allocation pattern with a high capital-labour ratio.

Therefore, a shift in the emphasis to mass consumer goods

industries would generate more employment to absorb the

unemployed labor force. Moreover, increase in the supply of such

goods may help arrest the rising price-level and increase the

economic welfare of the people. This is the wage-goods model of

development suggested by Vakil and Brahman and.

2. Encouragement to small enterprises as against big enterprises

The employment objective and the output objective can be

achieved, if greater investment is directed to small enterprises

rather than to large enterprises. Now that the Government

wants to undertake decentralized development with emphasis on

small-scale enterprises, it would be desirable to reorient credit,

licensing, raw material allocation and other policies in such a

manner that both employment and output are enlarged

simultaneously.

3. Problem of Choice of technique

It would be better to switch over to intermediate technologies

till the process of industrialization gets such a powerful

momentum that the new entrants to labor force can be

absorbed. During the period of rapid growth in the labor force, it

would be advisable to adjust the choice of techniques consistent

with the employment objective. Intermediate technology would

be more suited to Indian conditions.

4. Encouragement of New Growth Centers in Small Towns and

Rural Areas
Experience of planning has revealed that the overcrowded

metropolitan centers have received a large share of investment.

Therefore, the smaller towns should be developed as new growth

centers for the future. The establishment of small industrial

complexes can increase employment opportunities and provide

flexibility to the economy.

5. Subsidies on the Basis of Employment

All schemes of subsidies and incentives to large and small

industries have helped output maximization and greater use of

capital resources. The pattern of subsides should be altered.

Creation of more employment should be treated as the basis for

the grant of subsides and incentives. This will shift the entire

structure of government support from the large-scale producer

to the small-scale producer as this is more consistent with the

objective of employment generation and achieving equality and

social justice.

6. Reorientation of Educational Policy

One great defect of our educational system is that it leads one

to take up the professional degree only. The high degree of

unemployment among the educated signifies the urgent need to

reorient our educational system to greater employment

opportunities. Education system should be more diversified. It

should have more short term vocational courses that will cater to

the local employment needs. Development of quality education is

a prerequisite for the development of a nation as it is the

remedy for all problems including the problem of unemployment

in the country. Hence, a high priority needs to be accorded for

education in public expenditure.

7. Underemployment in Rural Areas

N.S.S. data have revealed the existence of a high degree of

underemployment in India. The total number of underemployed

persons available and willing to take up additional work is

estimated to be more than two cores. It is necessary to organize

the Rural works Programmed. Failure of implementation of

Rural Works Programmed underlines the relatively low

importance given to the rural sector to provide additional

employment to millions of landless labourers and small and

marginal farmers. Urgent action is needed in this direction so

that work opportunities grow in the rural areas. This will raise

the level of income and employment in rural areas and reduction

in poverty levels.
POOR EDUCATION – ITS DEFINITION

The quality in education need to be defined in the wider sense of

the overall aim of education as the all-round development of the
individual and his commitment to social objectives; and viewed in
this context, there is no doubt that vigorous efforts will have to
be made to improve these to suit the changing needs of the
country. It has become increasingly evident that the relevance of
education, its significance, its validity for personal aspiration, its
link with societal needs and goals, its efficiency and impact are
the basic parameters of every educational system.

Quality in education can also be interpreted from a different

viewpoint; it means educational standards are judged from
examination results. An educational institution that shows high
pass percentage is considered to be an institute of great quality.

Recent reports by PEW Research Centre in New York, PISA

study in Europe highlights the pathetic state of Indian Education
System. Though Right To Education (RTE) Act, 86th
Amendment Act, Article 21A of Fundamental Rights provide
free and compulsory education to all the children aging between
6 to 14 years but the initiative fails to provide adequate
infrastructure and quality of education as promised.+
Some of the causes of them are as follows:

Politicization: Politicization of higher education has posed a

serious threat to the quality of higher education. Appointment of
Vice-chancellors in many instances is being viewed politically. The
challenge of education document indicated that politicization is
not an early acceptable condition for the political parties in the
country. (Min. of Education, 1985, p. 75)"

Poor quality of intake: In order to attract students for

admission, the colleges go on awarding high grades/marks to
undeserving candidates. The colleges/university departments
admitting students on the basis of career marks get cheated in
many situations and thus get poor quality of students.

Managerial Inefficiency: generally, principals are appointed basing

on the seniority and the managerial efficiency is not taken into
account. There is no regular orientation programme for newly
appointed principals. It affects the quality of education as they
don't have the influential managerial skills.

Overcrowded Classrooms: lack of adequate number of teachers

and classrooms force many colleges to reduce their number of
groups and merge them into larger groups making it possible for
a teacher to carry out effective classroom interaction.
Inadequate Student Services: Most of the higher education
institutions today are not capable enough to provide services like
conducting orientation programmes, health services, hostel
facilities, guidance and counselling services to the students.

Inadequate material resources: Most of the higher education

institutions at present does not have proper material resources
like building, playground, good number of classrooms,
infrastructure, laboratory with sufficient equipment, toilet
facility, and staffrooms.

Non- accountability of institutions: Non-accountability of the

institutions leads to the poor quality in higher education.

Inefficiency in Teaching: An effective teacher needs to be lifelong

learner and need to strengthen his knowledge voluntarily. A good
institution is known by its teachers. The institution should be
supplied with various journals and good library facility which will
energize the teachers' proficiency and competency.

Some solutions are found on the eradication of the above

mentioned problems. They are:

1. Smart Learning Courses: E-learning, output oriented

study is the need of an hour.
2. Sufficient Funds to improve the needs of education
system which includes infrastructure facilities, good
 salaries to teachers, merit based scholarship to deserving
students.
3. Conducting Lectures/Seminars/Workshops from
Experts of renowned universities. Their teaching skills,
management expertise can have significant effect on our
system. GIAN is a good initiative by our gvt and more
such efforts need to be done.
4. For proper conceptual clarity of topics, state should
promote mother language in schools. With this even
parents can take part in their children education.

'Padhega India, Tabhi Toh Badhega India!' (Meaning “India will

learn, then only India Grows!” must be the motto of our
education system. Recent government schemes such as MOOC,
SWAYAM, SARANSH, Padhe Bharat Badhe Bharat etc. seems to
be quite promising but proper emphasis should be made on their
effective implementation.
POVERTY– ITS DEFINITION

India is known for the poor people it has. There are various
causes of poverty .There are some of the causes and have
suggested measures to reduce it as it is not possible to
eliminate it completely.

Poverty is a social phenomenon in which certain sections of the

society are unable to fulfil even the bare necessities of life.
There can be various reasons for it. Some are natural and out
of our control. However most of the reasons can be eliminated
through our efforts.

Causes of Poverty

i) High population growth

Fast growing population has reduced the per capita income of

our country. Hence the standard of living has also fallen

considerably. If the country is overpopulated a large part of

the income is spent on consumption and very little is saved for

developmental activities.
ii) Unemployment

this is the basic reason why most of the rural people are poor.

Many of our countrymen do not have a proper job to sustain

themselves and their families. Hence they remain poor and

cannot repay the loans taken by them.

Iii) Inflation

the income earned by the poor people is insufficient to buy

them the basic necessities of life and get them even two meals

a day. Due to the lack of nutrition they are unable to do any

physical work and hence they remain poor. The prices of basic

food items are so high due to high rate of inflation that the

little income earned by them is just insufficient.

iv) Underutilization of Natural Resources

India is blessed with the plenty of natural resources but we are

unlucky as we cannot them properly. The rural areas are

blessed with forests and wildlife but they are not aware of the

proper ways of exploiting theme .Hence the productivity of

forests decreases over time. Also we do not have sufficient

capital and technology to exploit them properly.

v) Backwardness of Agriculture

India is an agricultural economy. About 60% of our working

population depends on agriculture directly or indirectly. But

the pressure on land has increased so much that productivity

of land has decreased over time. Hence the agriculture has

failed to respond to the needs of time as it cannot provide

employment to the growing population which results in

poverty. Also the small farmers produces enough for self-

consumption and very little is left for sale in the market.

vi) Social Causes

the social setup of our country is still backward. There are

many traditions which do not allow fast development of our

society. For example dowry system tends to make a person

poor as he is forced to sell off his lands and property to satisfy

the greed of his daughter's fiancée.

vii)Political Causes

In India, all the developmental plans are guided by the selfish

interests of the politicians.They exploit the weaker sections of

our society.
Suitable Measures

i) Employment opportunities
Poverty can be eliminated if the poor people are given the jobs
according to their needs and talents. Self-employment can also
be provided to them. Government can set up institutions which
trains them in some practices and skills.

ii) Establishment of Small Scale Industries

Government should develop cottage, handicrafts and other
small scale industries to in the backward regions of our
country. Moreover this will transfer resources from the areas
of surplus to the deficit solving the problem of urbanization.

iii) Education
Government should take steps to spread awareness for
education so that the people do not have to depend on others
for their income. They can also protect themselves from
exploitation by the greedy traders.

IV) Reduce Inflation

Inflation tends to make poor poorer and rich richer. There
should be stability in the price level of the country.
Government should also reduce the burden of tax on the poor
and charge more on the richer class. Rationing should be
promoted so that the poor people get the basic necessities of
life at lower price level.

V) Check Population growth

much of the problem of poverty can be solved if the population
of the country can be reduced to an average level. This will
make developmental plans successful and the poor people will
have a greater share in the funds of the government.

vi) Proper Utilization of Resources

Resources of the country should be utilized properly so that we
can have the benefits of those free gifts of nature.

vii) Uplift of Agriculture

Agriculture is the backbone of our country. It provides income
to vast number of people. Hence the government should also
concentrate on it and not only on the industries.
CONCLUSION

India's gross domestic product (GDP) is expected to reach US$

6 trillion by FY27 and achieve upper-middle income status on
the back of digitisation, globalisation, favourable demographics,
and reforms.
India is also focusing on renewable sources to generate energy.
It is planning to achieve 40 per cent of its energy from non-
fossil sources by 2030 which is currently 30 per cent and also
have plans to increase its renewable energy capacity from 57
GW to 175 GW by 2022.
India is expected to be the third largest consumer economy as
its consumption may triple to US$ 4 trillion by 2025, owing
to shift in consumer behaviour and expenditure pattern,
according to a Boston Consulting Group (BCG) report; and is
estimated to surpass USA to become the second largest
economy in terms of purchasing power parity (PPP) by the
year 2040, according to a report by PricewaterhouseCoopers.
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