India- An Undeveloped Economy
Features of an underdeveloped Economy : Generally an economy is said to be underdeveloped, if it has the following characteristics...
1. Agriculture is the main occupation of the people. Nearly 60 to 80 percent of the population is engaged in agriculture and its related activities..
2. Poverty is widespread. The ability to save the people is very low. Due to the low rate of saving, the rate of capital formation/investment is very low..
3. Population grows at high rate and the burden of dependent population is also high..
4. The standard of living of people is generally low and the productivity of labour is also considerably low..
5. The production techniques are backward. Investment in research and development is quite low..
6. The incidence of unemployment and underemployment is quite high..
7. The level of human well-being measured in terms of real income, health and education is generally low..
8. Income inequalities are widespread.
9. Apart from the above features, such economies have low participation in foreign trade, their social life is traditional, people are generally orthodox in their outlook and they seldom make any changes in their socio economic relations..
India's Case: If we analyze Indian economy we may say that it is an undeveloped economy.. This is because it has most of the characteristics mentioned above..
1. Agriculture is the main occupation of the people in India.. At the time of Independence nearly 72 percent of the population was dependent on agriculture.. At present nearly 56 percent population is dependent on agriculture and allied activities.. There has been an increase in the absolute number of people engaged in agricultural activities in India..
2. In India, the incidence of poverty is very high.. Every third poor person in the world is an Indian.. According to the latest available data, nearly 22% of the population is below poverty line.. The corresponding ratio was 36% in 1993-94 and 26% in 1999-2000..
3. Over the years, Indian population has grown at a fast rate of more than 2%. The country is facing the problem of population explosion as the death rate is falling but there is no corresponding fall in the birth rate.. The dependency rate i.e percentage of people in non-working age group (below 15 and above 64 years of age) is nearly 40% in India as compared to developed countries where it is about 33%
4. India's per capita income was $1180 in 2009. It is low not only low compared to developed countries like USA, UK, Germany but also developing Countries like China, Srilanka, Indonesia etc. Because of low level of per capita, income the standard of living of people is quite low..
5. In India, because of low per capita income and low saving rates,the gross capital formation rates have remained considerably low.. Gross domestic savings were generally below 20% of GDP between 1950-1990. As a result gross domestic capital formation has also remained below 20% during these years.. Consequently, the rate of economic growth has remained stuck at a relatively low level.. Since 1990-91, there have been improvements in saving and investment rates. Beginning with around 23% in 1990-91 the gross domestic savings rates reached 29.8% in 2003-04 and became 37.7% in 2007-08: similarly gross domestic capital formation became 35.7% in 2006-07 and 38.1% in 2007-08 starting from 26% in 1990-91.. The Country's savings and investment rates had gone down a little during 2008-09 because of the deliberate decision of the government to encourage consumption as an antidote to the economic downturn. The latest data for 2009-10 shows that these rates have turned around.. In 2009-10, the savings rate was 33.7% and capital formation stood at 36.5%..
6. Techniques of production, especially in the agriculture sector are still backward. Productivity in agriculture as well as in industrial sector is low in India as compared to advanced Countries..
7. The incidence of unemployment is quite high.. As per 64th Round of survey by National Sample Survey Organisation (NSSO), unemployment rate is as high as 8.1% of the labour force.. In other words, out of 100 persons in the labour force, s many as 8.1 are unemployed.. The Comparative data in 1999-00 was 7.31% and for 2004-05 it was 8.28%. Not only there is high rate of open unemployment the rate of disguised unemployment is also very high.. Disguised Unemployment means apparently people are employed but their contribution to the production is very-very low.. In other words, their productivity is NIL or negative.. Such type of unemployment is more common in the agricultural sector.. Here many people work in a small farm land but their contribution as almost NIL.. So they are disguisedly unemployed. The actual extent of disguised unemployment is difficult to measure..
8. In India, the level of human well-being is also quite low.. For measuring human well-being, generally human development index constructed by the United nations Development Programme is used..The HDI is a composite of of three basic indicators of human development - longevity, knowledge and standard of living.. Longevity is measured in terms of real GDP per capita.. The HDI is a simple average of the above indices.. The UNDP find these index for all countries and ranks them.. According to the latest UNDP report 2010, India's relative global ranking on this index has remained at a low of 119 among 169 countries.. The comparative ranking in 2009 was 134.. Its HDI was 0.44 in 2000 which improved to 0.512 in 2009 and further marginally improved to 0.519 in 2012..
9. The distribution of Income and wealth in India is not equitable.. In order to measure the inequality of income and wealth, generally Gini index is used.. The Gini index measures the extent to which distribution of Income/consumption among individuals or households within an economy deviates from a perfectly equal distribution.. A Gini index of zero represents perfect equality while an index of one represents perfect inequality.. The Gini coefficient lies between 0 and 1.. According to the Human Development Report 2010, the Gini Index for India for the period 2000-10 was 0.368.. The corresponding figure was 0.297 in 1994. Thus, over this period, the inequalities of Income and wealth have increased.. India's Gini Index was more favourable than those of comparable countries like South Africa(0.578), Thailand(0.425), Brazil(0.55), China(0.415) and even USA(0.408)...India- A Developing Economy
1. Rise in national Income:
India's national Income i.e. Net National Product (NNP) at factor cost was RS 204924 crore in 1950-51 which rose to RS 3946540 crore in 2009-10.. Thus over a period about 6 decades the NNP has increased by more than 18 times.. On an average, the NNP has increased at a rate of a little less than 5% per annum.. During the last 3 decades, NNP rose at a rate of more than 5.5% per annum as against 3.5% per annum during the first three decades of Planning.. Thus, we see that India is growing although at not so high rate of growth..
2. Rise In Per Capita Income:
Per Capita In India was RS 5708 in 1950-51.. It rose RS 33731 in 2009-10. Thus over a period of about 6 decades per capita income has increased by nearly 5 times.. On an average, the per capita income has increased at a rate of around 2.2% per annum.. In fact, in the last 3 decades there has been a spurt in the growth rate of per capita income.. It rose at an average rate of 3.5 per annum, during these period compared with 1.4% per annum during the first 30 years of planning..
3. Significant Changes in occupational distribution of Population:By occupational structure of a country we mean the distribution of work force in different occupations of the Country.. All occupations are broadly divided into 3 groups..
a. Primary sector: Primary sector includes agriculture and other activities related with agriculture such as animal husbandry, forestry, poultry farming etc..
b. Secondary Sector: This includes all types of manufacturing activities including construction etc..
c. Tertiary Sector: This sector includes trade, transport, communication, banking and other such services..
In general, it has been found that as an economy grows, there is a shift of labour force from primary sector to secondary and tertiary sector.. The proportion of working population in agriculture and allied activities falls and the proportion of working population in secondary sector and tertiary sector rises.. This happens basically because of 2 reasons.. Firstly, as economic development takes place income increases but demand for agricultural goods does not increase proportionately.. On the other hand, rise in income brings about a large increase in demand for goods and services produced by secondary and tertiary sectors.. Secondly, as an economy develops, better techniques of production become available to the agricultural sector which improve productivity of land and labour in these sector.. The result is that there is a less need for labour in agriculture.. On the other hand, although productivity also improves in the industrial sector, the increase in demand for industrial goods is far greater than the rise in productivity in this sector.. This necessitates engagement of more labour in this sector,hence the shift takes place..
Occupational structure in India:
During 1951, primary sector offered work to about 72% of the working population, secondary sector to the 10.6% and tertiary sector to the 17.3% of the working Population.. In 2001 there was some change in the occupational distribution. The primary, secondary and tertiary sectors respectively occupied 59.3%, 18.2% and 22% of the working population..
According to the economic survey 2007-08, around 52.7% of the working population was engaged in Primary sector, 18.8% in secondary sector, and 28.5% in tertiary sector in 2004-05..
Thus, over a period of 5 and a half decades there has been a shift of work force from primary to secondary and tertiary sectors signifying development in the economy..
4. Important changes in sectoral distribution of domestic product:
An important indicator which shows that India is growing is decline in the share of agricultural sector in the overall gross domestic product..
5. Growing capital base of the economy:
Another characteristics which hint that the economy is growing is the development of strong industrial base in the country.. At the time of Independence, we had very few and basic capital goods industries.. But after Independence, especially in the second plan a high priority was given to establishing basic industries.. As a result, a large number of industries have been established during the planning period.. These include, iron and steel, heavy chemicals, nitrogenous fertilizers, heavy engineering, machine tools, locomotives, heavy chemicals, heavy electrical equipment, petroleum products and many more..
6. Improvements in social overhead capital:
Social overhead capital mainly includes transport facilities, irrigation facilities, energy, education system, health and medical facilities. When there is an expansion in these facilities, we say that economy is growing. In India, since Independence, these facilities have improved a lot as can be seen from the following points:
a. Indian Railways cover about 64000 kms. Indian railways has been Asia's largest and world's second largest rail network under a single management. In 2 metro-cities-Kolkata and Delhi, metro rail system has been working.. This system has solved the problem of traffic congestion in these cities to a great extent..
b. Diesel and electrical locomotives have replaced steam engines..
c. The India road network has become second largest network in the world aggregating 3.34 million kilometres..
d. Although the country is still facing energy crisis , there has been an impressive increase in the installed capacity.. In 2009-10, the installed electricity generating capacity was about 188000 MW against 2300 MW in 1950-51. 74700 MW in 1990-91 and 117800 MW in 2000-01..
e. Similarly, irrigation facilities have increased raising the land under irrigation from 22.6 million hectares in 1950-51 to 87.2 million hectares in 2007-08..
f. In the field of education, during the planning period, the number of primary educational institutions has nearly quadrupled, the number of middle/senior basic schools and higher secondary educational institutions have increased by around 23 times.. There are more than 13350 colleges for general education and nearly 7000 colleges for professional education and more than 400 universities.. The literacy rate has increased from 18.33% in 1951 to 768.3% in 2008-09
g. In the field of medicine and health also, some development has taken place. The number of doctors has increased by more than 11 times increasing from 61800 in 1951 to more than 7.5 lakh in 2009.. The bed-population ratio os now 1.03 per 1000 population increasing from .32 per 1000 in 1950-51..
7. Development on the banking and financial sector :
Since Independence, important developments have taken place in the banking and financial sector.. Initially banks were under private ownership.. But after independence, the process of nationalization was started.. In 1949 RBI was nationalized and later in 1969 and 1980 many big banks were nationalized.. As a result, banks which earlier catered to very small population have now reached at every nook and corner.. Agricultural sector, small scale industries and other sectors have been getting bank's funds on a priority basis and at concessional rates of interest..Thus, we can say, that although India is economically not so strong economy, but it is on the road of development. If its present pace of development continues, in the near future it will become an economic force to reckon with..
India- A Mixed Economy
In India, we observe that the following characteristics exist:
1. Private ownership of means of production:
Agriculture and most of the industrial and services sectors are in the private hands..
2. Important role of market mechanism:
Market forces of demand and supply have free role in determining prices in various markets.. Government regulations and control over period of time have reduced a lot..
3. Growth of monopoly houses:
Over a period of time, many big business houses have come into being and have been growing such as Tatas, Birlas, Reliance, Infosys etc..
4. Presence of a large public sector along with free enterprise:
After Independence, the Government recognized the need to provide infrastructure for the growth of the private sector.. Also, it could not hand over strategic sectors like arms and ammunition, atomic energy, air transport etc to the private sector.. So public sector was developed on a large scale..
5. Economic planning as a means of realizing overall national economic goals:
Economic Planning has been an integrated part of the Indian economy.. The Planning commission lays down overall targets for the economy as a whole, for public sector and even for the sectors which are in the private hands like agriculture. The government tries to achieve the laid down targets by providing incentives to these sectors.. Thus, here planning is only indicative in nature and not compulsive..
