CHARACTERISTICS OF THE INDIAN ECONOMY

Indian economy overview was highly inspired by Soviet Union's practices post-
independence. It had been recording growth rate not greater than five jumped
till 1980s. This stagnant growth was termed by many economists as 'Hindu
Growth Rate'. In 1992, the country ushered into liberalization regime.
Thereafter, the economy started scaling upward. This new trend in growth was
called 'New Hindu Growth Rate'. From economic reforms of 1991 the Indian
economy moved towards planned economy to free economy. Still Indian
economy facing challenges like low growth of GDP, unemployment, poverty etc.

Today, Indian economy bags the seventh position among the other strongest
and largest economies among the world. Being one of the top listed countries
among the developing countries in terms of industrialization and economic
growth, India holds a robust stand with an average growth rate of approx 7%.

Mixed Economy: An economic system in which both the private enterprise and
a degree of state monopoly (usually in public services, defense, infrastructure,
and basic industries) coexist. All modern economies are mixed where
the means of production are shared between the private and public sectors.
Also called dual economy. Indian Economy is a unique blend of public and
private sector which is a main feature of mixed economy.

Countries which are on the path of progress and which have their potential for
development are called developing economies. So India is termed as developing
economy.

Some of the characteristics are:

1. PRE-DOMINANCE OF AGRICULTURE

2. HIGH RATE OF POPULATION GROWTH GROWTH

3. UNDERUTILIZED NATURAL RESOURCES

4. WIDESPREAD CHRONIC UNEMPLOYMENT AND UNDER-EMPLOYMENT

5. LOW PER CAPITA INCOME

6. LOW LEVEL OF LIVING

7. LOW RATE OF CAPITAL FORMATION AND CAPITAL DEFICIENCY

8. INEQUALITY IN THE DISTRIBUTION OF WEALTH

9. POVERTY

10. LOW HUMAN DEVELOPMENT INDEX

11. TRADITIONAL SET UP OF SOCIETY

12. LOW QUALITY OF HUMAN CAPITAL

13. BACKWARDNESS AND LACK OF INFRASTRUCTURE

14. TECHNOLOGICAL BACKWARDNESS

15. DEMOGRAPHIC CHARACTERISTICS

16. MARKET IMPERFECTIONS

17. POOR AND INADEQUATE DEVELOPMENT OF ECONOMIC

ORGANIZATION

18. ECONOMIC BACKWARDNESS

1. PRE-DOMINANCE OF AGRICULTURE (Agriculture Based Economy) :

Agriculture is the back bone of Indian economy. It is the main sector of
Indian economy which is in total contrast to the economic structure of a
developed economy. Agriculture and allied sectors provide around 14.2%
of Indian GDP while 53% of total Indian population is based on the
agriculture sector. A very high proportion of working population is
engaged in agriculture. This reflects the backwardness of the
economy. This gives a higher impact on the Indian economy, both directly
and indirectly. Unemployment, poverty, low modernisation and
diversification, low productivity, lack of irrigation facility, lack of credit are
the main problems of agriculture sector.

2. HIGH RATE OF POPULATION GROWTH (Over population, high

population density and population growth): Population is a major factor
influencing the nature of a country's economy. High population growth
rate is also an indicator of underdevelopment. 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. India’s population growth rate was 1.93% per annum
and about 21% per decade for 1991-2001, which is still very high as
compared to developed economies. 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. Thus whatever
development that has been achieved in the country, it is being swallowed
up by the increased population.

All the under developed countries are characterized by high birth rate
which stimulates the growth of population; the fast rate of growth of
population necessitates a higher rate of economic growth to maintain the
same standard of living. The failure to sustain the living standard makes
the poor and under developed countries more poor and under developed.
High population rate is the main problem that India has been facing since
50 years.

3. UNDERUTILIZED NATURAL RESOURCES: India is a rich country

inhabited by poor people. It means that the country possesses abundant
stock of natural resources (viz., land, water, minerals, forest and power
resources) but these resources are not fully utilized for the production of
material goods and services. Due to its various inherent problems like
inaccessible region, primitive techniques, shortage of capital and small
extent of the market such huge resources remained largely underutilised.

4. WIDESPREAD CHRONIC UNEMPLOYMENT AND UNDER-

EMPLOYMENT: Unemployment is often used as a measure of the health
of the economy. The most frequently measure of unemployment is the
unemployment rate, which is the number of unemployed people divided
by the number of people in the labor force. Unemployment records
in India are kept by the Ministry of Labour and Employment of India.

Unemployment in India is a serious social issue. Unemployment in India is

a direct outcome of the rapidly increasing population. Unemployment is a
phenomenon that occurs when a person who is actively searching for
employment is unable to find work. More people need more jobs but it is
not possible to provide gainful employment the entire population. Lack of
job opportunities and disguised unemployment is created’ in the
agriculture sector. As a result, there is deficiency of capital formation.
Unemployment in India is the result of deficiency of capital. Indian
industries are not getting adequate amount of capital for its necessary
expansion so as to absorb the entire surplus labour force into it.

5. LOW PER CAPITA INCOME: In India, the national income and per capita
income is very low and it is considered as one of the basic features of
underdevelopment. This is due to large size of population. According to
the 2011 census, India's population is 121 crores.
 According to World Development Report, India's per capita income was
$3620. It is a very low per capita income as compared to developed
countries. The per capita income at constant prices (2011-12) for the year
2015-16 is at the level of Rs. 77,431/-.For example the per capital income
of India was USD460, in 2000. Whereas the per capita income of U.S.A in
2000 was 83 times than India. This trend of difference of per capita
income between under developed and advanced countries is gradually
increasing in present times. This per capita income figure of India is the
lowest in the world and it is even lower than China and Pakistan.

6. LOW LEVEL OF LIVING: The standard of living of Indian people in

general is considered as very low. Nearly 25 to 40 per cent of the
population in India suffers from malnutrition. The average protein content
in the Indian diet is about 49 grams only per day in comparison to that of
more than double the level in the developed countries of the world. The
low calorie intake in Indian diet is another characteristic of low level of
living. The present calorie level in India is just above the minimum caloric
level required for sustaining life which is estimated at 2100 calories.
Moreover, a small percentage of Indian populations have access to safe
drinking water and proper housing facilities.

7. LOW RATE OF CAPITAL FORMATION AND CAPITAL DEFICIENCY:

Capital deficiency affects economy as well as social factors. India suffers
from deep rooted shortage of capital. Capital deficiency is very low
because the population rate rises at a rapid rate.

Capital formation mainly depends on the ability and willingness of the

people save. The rate of capital formation is low because of lower level of
income. Hence, the ability of the people to save is very low.

Considering the heavy population pressure and the need for self sustained
growth, the present rate of saving is inadequate. To achieve a higher rate
of economic growth and to improve the standard of living, a still higher
rate of capital formation is very much required in India.

8. INEQUALITY IN THE DISTRIBUTION OF WEALTH (Income

Disparities): In India, not only the per capita income is low but also the
income is unequally distributed. This mal-distribution of income and
wealth makes the problem of poverty more critical and acute and stands
as an obstacle in the process of economic progress. Maldistribution in
income is the result of inequality in the distribution and ownership of
assets. 1% Indians owned 53% of the country’s wealth, while the share of
 the top 10% was 76.30%. To put it differently, 90% of India owns less
than a quarter of the country’s wealth.

9. 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. Moreover, rural as well
as urban area relates poverty. According to the Indian Planning
Commission, In 2015, around 170 million people, or 12.4%, lived in
poverty (defined as $1.90 (Rs 123.5)), a reduction from 29.8% in 2009.
Thus it is a huge challenge to reduce poverty.

10. LOW HUMAN DEVELOPMENT INDEX: 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 drawback relating to total
intake. India's literacy rate is 76 % but we can say 24 % people are still
illiterate. India's life expectancy is 64 at live birth and developed countries
life expectancy is more than 80. India continued to rank low in the Human
Development Index (HDI), but climbed five notches to the 130th rank in
the latest UNDP report on account of rise in life expectancy and per capita
income. India's 2014 HDI of 0.609 is below the average of 0.630 for
countries in the medium human development group.

11. TRADITIONAL SET UP OF SOCIETY (Backward Institutional and

social framework): The social and institutional framework in India is very
backward. India is trapped in are trapped in the menace like casteism,
communalist, male dominated society, superstitions, lack of
entrepreneurship, and ‘chalta hai attitude’ of the peoples. This is a strong
obstacle to any change in the form of production. Moreover, religious
institutions such as caste system, joint family universal marriage affects
the economic life of the people.

12. LOW QUALITY OF HUMAN CAPITAL: Indian economy is suffering

from poor quality of human capital. Mass illiteracy is the root of this
problem and illiteracy at the same time is retarding the process of
economic growth of our country. As per 2001 census, 65.3 per cent of the
total population of India is literate and the rest 34.7 per cent still remains
illiterate.

In most of the developed countries like U.S.A., U.K., Canada, Australia

etc. the level of illiteracy is even below 3 per cent. Moreover, the problem
of illiteracy in India makes way for conservatism and this is going against
the economy of the country.
 Besides, low level of living is also responsible for poor health condition of
the general masses. All these have resulted the problem of poor quality of
human capital in the country.

13. BACKWARDNESS AND LACK OF INFRASTRUCTURE:

Infrastructure is classified as Physical infrastructure and Social
infrastructure. Physical infrastructure: refers to road, transportation and
communication facilities, electricity generation and distribution, banking
and credit facilities, insurance, economic organisation, 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 is related to
human resource development and it is not directly or indirectly related to
GDP. Lack of infrastructural facilities is one of the serious problems from
which the Indian economy has been suffering till today.

14. TECHNOLOGICAL BACKWARDNESS: This is another feature of

Indian economy. India is less advanced in technology as compared to
developed countries. Due to the application of poor technology and lower
skills, the productivity in both the agricultural and industrial sectors of our
country is very low. This has resulted in inefficient and insufficient
production leading towards general poverty in our economy.

15. DEMOGRAPHIC CHARACTERISTICS: The demographic

characteristics of India are not at all satisfactory rather these are
associated with high density of population, a smaller proportion of the
population in working age group of 15-60 years and a comparatively
larger proportion of population in the minor age group of 0-15 years. All
these shows that the dependency burden of our population is very high.

16. MARKET IMPERFECTIONS (PRICE INSTABILITY): Price

instability is also a basic feature of Indian economy. There is continuous
price instability. Shortage of essential commodities and gap between
consumption and production increase the price persistently. Rising trend
of price creates a problem to maintain standard of living of the common
people.

17. POOR AND INADEQUATE DEVELOPMENT OF ECONOMIC

ORGANIZATION: Economic organization is an important and pushing
factor for economic institutions have been working in India, however it is
not developed enough. Banking systems are not developed well in rural
areas, in recent years capital and money markets are not much developed
in India. Industrial banks, financial institutions are not very common in
 India. In this point of view India has lack of structural economic
organization set up.

18. ECONOMIC BACKWARDNESS: India is developing country and

has been facing the problem of unemployment, poverty, low per capita
income, lack of technology, high growth rate of population, low labor
efficiency, economic ignorance, social and religious problems factors,
immobility, limited developed occupation and trade, caste system,
corruption at every stage. Thus reflecting India as economically back ward
country.

Summary (Features of Indian Economy)

 The best indicator of economic development of any country is per capita

income.
 India follows mixed economy, where in the means of production are
jointly owned by Private and Public sector simultaneously.
 Primary sector of Indian Economy is agriculture and related sectors and
the Secondary sector is related to industry, manufacturing, electricity etc.
The tertiary Sector is related to Services.
 Generally an economy is considered backward if agriculture is the main
occupation of people, population is growing at high rate, techniques of
production are backward, incidence of unemployment and high rate of
poverty.
 Indian economy is an under developed/developing economy in which
Agriculture is the back bone of Indian economy. 53% of its population is
dependent on the Agriculture. In fact, about 30% of our GDP today is
earned from the agricultural sector itself. However, of late, the share of
Agriculture is decreasing and share of service sector is increasing.
 Services are the major source of economic growth, accounting for more
than half of India's output with less than one third of its labour force.
Tertiary sector contributes 56% of GDP (2012-13).
 If we observe Indian economy, we may conclude that Indian economy is
under developed. But, if we observe the growth in national income, per-
capita income, occupational structure, capital base, etc. we may say that
India is a developing economy.
 The country is classified as a newly industrialised country, and one of
the G-20 major economies, with an average growth rate of approximately
7% over the last two decades.
 India's economy became the world's fastest growing major economy in
the last quarter of 2014, surpassing the People's Republic of China.
 The economy of India is the seventh-largest in the world measured
by nominal GDP and the third-largest by purchasing power
parity (PPP). The current GDP factor cost is (at 2004-05 prices) Rs.
5748564 cr (2013-14). Per capita Income (at current prices) is Rs. 74920
(2013-14). Gross domestic saving rate (at current market price as % of
GDP) for 2-11-12 is 30.8%. India’s share in world export is 1.8% of total
trade. India’s share in total world import is 2.5%. Total size of foreign
exchange reserve of India is $ 330 bn in 2015. 60% of India’s population
are below poverty line.
 Exports of top five sectors — engineering, petroleum, gems and jewelery,
textiles and pharmaceuticals accounted for about 65% of the country's
total merchandise exports in 2014-15. $13.33 billion in August 2015.
 Indian State of Maharashtra is the wealthiest Indian state with an annual
nominal GDP of US$330 billion, roughly equivalent to those
of Venezuela and the United Arab Emirates, and accounts for 13.4% of
Indias GDP followed by the states of Tamil Nadu (US$170 billion)
and Uttar Pradesh (US$150 billion).