Business Environment

B.COM. 2nd YEAR/ 3rd SEMESTER DATE: 20/09/2022

SUB: Business Environment
UNIT-1 NOTE - 2
INDIAN ECONOMY
 Countries are divided into two major categories by the United Nations, which
are developed countries and developing countries.
 The classification of countries is based on the economic status such as GDP,
GNP, per capita income, industrialization, the standard of living, etc.
 Developed Countries refers to the sovereign state, whose economy has highly
progressed and possesses great technological infrastructure, as compared to
other nations.
 The countries with low industrialization and low human development index are
termed as developing countries.
 The following are the names of some developed countries: Australia, Canada,
France, Germany, Italy, Japan, Norway, Sweden, Switzerland, United States.
 The following are the names of some developing countries: China, Colombia,
India, Kenya, Pakistan, Sri Lanka, Thailand, Turkey, U.A.E.
 The World Bank assigns the world's economies into four income groups —
high, upper middle, lower-middle, and low.
 The units for this measure and for the thresholds is current US Dollars.
 The income-category of a country is not one of the factors used that influence
lending decisions.

CONCEPT OF INDIAN ECONOMY

India is a developing nation and economy, including a blended economy on the
planet. The significant attributes of a developing economy are overpopulation, the
most extreme populace underneath the destitute or poverty line, a poor
infrastructure, an agro-based economy, a slower pace of capital development, and
low per capita income. Since the freedom of the country, India has been creating
numerous viewpoints according to the monetary perspective.

i) Mixed economy: India has mixed economy with a large public sector. It is the
principle feature of Indian economy which differentiates it from other economies of
the world.
ii) Federal economy: It implies that the Governmental economic activities and
institutions operate at two levels- at central level and at state level. For eg. railways,
post, etc. come under the state. 
iii) Underdeveloped or developing character: We have all features of an
undeveloped economy such as low per capita income and widespread poverty;
economic inequalities; unemployment; low level of technology, etc.
iv) Progressive character: A number of things suggest the progressive character of
Indian economy such as the development of basic industries ( Iron and steel,
fertilisers, etc.) improvement in education, health, etc.
v) Dual character: Indian economy encompasses the features of both types of
economies- underdeveloped as well as progressive. 

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BASIC/ IMPORTANT FEATURES OF INDIAN ECONOMY

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.

Pre-dominance of Agriculture.
 Agriculture and allied sectors provide around 14.2% of Indian GDP while 53% of
total Indian population is based on the agriculture sector.
 In most of the countries of Asia, Middle East and Africa, from two-thirds to four-
fifths of their total population are solely dependent on agriculture.
 In most of the developed countries like U.K., U.S.A. and Japan, the percentage of
active population engaged in agriculture ranges between 1 to 5 per cent.

High population.
 High population growth rate is also an indicator of underdevelopment.
 India’s population growth rate was 1.93% per annum and 21.34 % per decade
during 1991-2001, which is still very high as compared to developed
economies.
 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.
 Overpopulation is one of the main pressing issues of the Indian economy. The
number of inhabitants in India gets expanded by around 20% in every decade
consistently. Around 17.5% of the total populace is owned by India.

Underutilized Natural Resources.

 It has been stated that India is a rich country inhabited by poor people.
 Various types of natural resources, viz., land, water, minerals, forest and
power resources are available in sufficient quantity in the various parts of the
country.
 But 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. A huge quantity of mineral and forest
resources of India still remains largely unexplored.
Lack of infrastructure facility.
 Lack of infrastructural facilities is one of the serious problems from which the
Indian economy has been suffering till today.

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 These infrastructural facilities include transportation and communication

facilities, electricity generation and distribution, banking and credit facilities,
economic organisation, health and educational institutes etc.

Capital deficiency.
 Capital deficiency affects economy as well as social factors, India suffers from
deep rooted shortage of capital.
 The level of savings is very low and capital formation rate is also low. Capital
deficiency is very low because the population rate rises at a rapid rate

Unemployment.
 Unemployment is a phenomenon that occurs when a person who is actively
searching for employment is unable to find work.
 Unemployment is often used as a measure of the health of the economy.
 Unemployment in India is a serious social issue.
 Unemployment records in India are kept by the Ministry of Labour and
Employment of India.
 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.

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.
 The per capita pay of India is considerably less than that of the other developing
nations. As indicated by the assessments of the Central Statistics Office (CSO),
the per capita net public income of India at present costs for the year 2020-21
(based on 2011-12 prices) was around Rs. 86,659.
 India per capital income is very low as compared to the advanced countries.
 This trend of difference of per capita income between under developed and
advanced countries is gradually increasing in present times.
 Despite a few negative perspectives, there are some sure things in the Indian
economy. Different plans of the government have supported the Indian economy
in numerous ways. India is driving towards superior financial construction with
the assistance of ‘Digital India’, ‘Make in India’, and so on.

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.

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Poverty
 Poverty is an important issue in India, despite having one of the fastest growing
economies in the world, poverty increased from 18.5% in 2019-'20 to 26.5% in
2020-'21

Poor Infrastructural Development:

According to a new report, around 25% of Indian families can’t acquire electricity,
and 97 million individuals can’t acquire safe drinking water. Sanitation
administrations can’t be acquired by 840 million individuals. India requires 100
million dollars to dispose of this infrastructural abnormality.

Obsolete Technology:
Indian creation of work is labour-intensive in nature. There is an absence of
innovations and modern machinery.

Backward Society:
Indian social orders are caught in the scourge of communalism, male- dominated
society, odd notions, caste system framework, and so forth. The above factors are the
significant limitation of the development of the Indian economy.

SUMMARY (FEATURES OF INDIAN ECONOMY)

» 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.
» Primary sector of Indian Economy is agriculture and related sectors.
» Secondary section of Indian Economy is related to industry, manufacturing,
electricity etc.
» 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. 
» India follows mixed economy, where in the means of production are jointly owned by
Private and Public sector simultaneously.

COMPONENTS/SECTORS OF INDIAN ECONOMY

The adoption of the New Economic Policy in 1991 saw a landmark shift in the Indian
economy, as it ended the mixed economy model and license raj system - and opened
the Indian economy to the world. An overview of the top performing sectors of the
Indian economy is given below - 
 
1.    Agricultural Sector:
One of the most important sectors of the Indian economy remains Agriculture. Its
share in the GDP of the country has declined and is currently at 14%. However, more
than 50% of the total population of the country is still dependent on agriculture.
Keeping this in mind, the Union Budget 2017 - 18 gave high priority to
the agricultural sector and aimed to double farmers’ incomes by 2022.
•    Government subsidies to agriculture are at an all - time high.
•    Further, cropping patterns have shifted in favour of cash crops such as

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sugarcane and rubber.

•    Introduction of cooperative farming like – e - choupal etc.
•    Rise of SHGs such as Lijjat Papad.
•    Agricultural land is being brought under industrial and commercial use, thereby
straining the remaining agricultural land.
•    Many export sectors have been opened for agricultural goods.
•    Food processing is emerging as a ‘Sunrise Industry’
 
2.    Industry Sector:
Another important part of the Indian economy is the Industry sector. Changes such
as the end of the ‘Permit Raj’ and opening up of the economy were welcomed in the
country with great enthusiasm and optimism. As a result of these changes, the
industrial potential of the economy has increased since 1991. 
•    Proliferation of industries, from traditional iron and steel to jute and automobiles.
•    Autonomy in production, marketing and distribution.
•    Reduced red - tapism.
•    Encouragement to private investments, both domestic as well as FDI.
•    Transfer of technology and benefits of research and development to the advantage
of the economy.
•    Arrival of investment models such as joint ventures, public-private partnerships,
MNCs.
•    Private players got an opportunity to enter new sectors, which were earlier under
government monopoly.
 
3.    Services Sector:
The sector that benefited most from the New Economic Policy was the services
sector. Banking, Finance, Business Process Outsourcing - and most
importantly Information Technology services - have seen double - digit growth. 
•    Indian IT giants such as Infosys, WIPRO and TCS have made their mark on the
global platform. 
•    60 percent of the GDP contribution comes from the services sector. 
•    India, with its huge demographic dividend potential, has emerged as the IT hub of
the world.
•    New employment opportunities are being created in this sector.
•    Opening of transportation, tourism and medical sectors have led to the growth of
service sector competencies.
•    RBI has transitioned from being a regulator to a facilitator.
•    Product diversity of financial investments.
•    Wider penetration of services such as insurance, banking, stock market etc.
•    Considerable improvement in forex reserves.
 
4.    Food Processing:
Food processing has emerged as a high - growth, high - profit sector and is one of the
focus sectors of the ‘Make in India’ initiative. The vast availability of raw materials,
resources, favourable policy measures and numerous incentives have led India to be
considered as a key attractive market for the sector. With a population of 1.3 bn and
an average age of 29, as well as a rapidly growing middle - class population that
spends a high proportion of their disposable income on food, India boasts of a large
consumer base. The total consumption of the food and beverage segment in India is

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expected to increase from $ 369 bn to $ 1.14 tn by 2025. The output of the food

processing sector (at market prices) is expected to increase to $ 958 bn during the
same period. India is the second largest producer of food grains in the world, second
only to China. This sector has huge potential in India due to increasing urbanization,
income levels and a high preference for packaged and processed food. Visit the
sectors category to read more about the food processing industry.
 
5.    Manufacturing Sector:
The manufacturing sector is the second largest contributor to India’s GDP after the
Services sector. Various government initiatives like Make in India, MUDRA,
Sagarmala, Startup India, Freight Corridors, along with a whole - hearted
contribution from states, will raise the share of the manufacturing sector in the
foreseeable future.
However, if India aims to raise its share of manufacturing in GDP to around 25%, the
industry will have to significantly step up its research and development expenditure.
The quantum of value addition has to be increased at all levels and the government
needs to offer attractive remuneration to motivate people to join the manufacturing
sector.

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