Indian Economy

Long years ago we made a tryst with destiny, and now the time comes when we shall
redeem our pledge, not wholly or in full measure, but very substantially. At the stroke
of the midnight hour, when the world sleeps, India will awake to life and freedom. A
moment comes, which comes but rarely in history, when we step out from the old to the
new, when an age ends, and when the should of a nation , long suppressed, finds
utterance.
- Pandit Jawaharlal Nehru, first Prime Minister of
independent India, in his speech marking the achievement of Indian independence
from Britain, on 14 August 1947.
...India has all the material and human resources to be a frontranking nation of the
world. We are on the threshold of a new century, indeed a new millennium. There are
tremendous opportunities, provided we have the wisdom and foresight to seize them.
There are also immense dangers if we falter or appear indecisive. ...This then is a time
for hard work, for recapturing the high noon of idealism which inspired our freedom
struggle, for a firm determination to hold aloft, undimmed and untarnished, the bright
torch of India which, as awaharlal !ehru was fond of saying, embodies her great and
eternal spirit so that its light reaches every home and rekindles hope, faith and
courage, and pride in being an Indian.
-Manmohan Singh, Prime Minister of India
Economic growth
Definition-:
An increase in the total amount of output, income and spending in the econom. A
positive change in the level of production of goods and services ! a countr over a
certain period of time. "ominal gro#th is defined as economic gro#th including
inflation, #hile real gro#th is nominal gro#th minus inflation. $conomic gro#th is
usuall !rought a!out ! technological innovation and positive e%ternal forces.
Economic growth is a term used to indicate the increase of per capita gross domestic
product &'(P) or other measure of aggregate income. It is often measured as the rate of
change in '(P. $conomic gro#th refers onl to the *uantit of goods and services
produced.
$conomic gro#th can !e either positive or negative. "egative gro#th can !e referred to
! saing that the econom is shrinking. "egative gro#th is associated #ith economic
recession and economic depression.
In order to compare per capita income across multiple countries, the statistics ma !e
*uoted in a single currenc, !ased on either prevailing e%change rates or purchasing
po#er parit. +o compensate for changes in the value of mone &inflation or deflation)
the '(P or '"P is usuall given in ,real, or inflation ad-usted, terms rather than the
actual mone figure compiled in a given ear, #hich is called the nominal or current
figure. $conomists dra# a distinction !et#een short.term economic sta!ili/ation and
long.term economic gro#th. +he topic of economic gro#th is primaril concerned #ith
the long run. +he short.run variation of economic gro#th is termed the !usiness ccle.
+he long.run path of economic gro#th is one of the central *uestions of economics0
despite some pro!lems of measurement, an increase in '(P of a countr is generall
taken as an increase in the standard of living of its inha!itants. 1ver long periods of time,
even small rates of annual gro#th can have large effects through compounding. A gro#th
rate of 2.34 per annum #ill lead to a dou!ling of '(P #ithin 29 ears, #hilst a gro#th
rate of 54 per annum &e%perienced ! some 6our Asian +igers) #ill lead to a dou!ling of
'(P #ithin 17 ears. +his e%ponential characteristic can e%acer!ate differences across
nations.
"ositive effects of economic growth
Income distribution
$conomist 8avier 9ala.i.Martin argues that glo!al income ine*ualit is diminishing, and
the :orld Bank argues that the rapid reduction in glo!al povert is in large part due to
economic gro#th. +he decline in povert has !een the slo#est #here gro#th performance
has !een the #orst &i.e. in Africa).
uality of life
;appiness has !een sho#n to increase #ith a higher '(P per capita, at least up to a level
of <13,777 per person.
!esource de"letion
Man earlier predictions of resource depletion, such as +homas Malthus= 1795
predictions a!out approaching famines in $urope, The Population Bomb &19>5), Limits
to Growth &1972), and the 9imon.$hrlich #ager &1957) have proven false, one reason
!eing that advancements in technolog and science have continuall allo#ed previousl
unavaila!le resources to !e utili/ed more economicall.
$conomists theori/e that economies are driven ! ne# technolog and ongoing
improvements in efficienc ? for instance, #e have faster computers toda than a ear
ago, !ut not necessaril computers re*uiring more natural resources to !uild.Also,
phsical limits ma !e ver large if considering all the minerals in the planet $arth or all
possi!le resources from space coloni/ation, such as solar po#er satellites, asteroid
mining, or a (son sphere. +he !ook Mining the Sky: Untold Riches rom the !steroids"
#omets" and Planets is one e%ample of such arguments. ;o#ever, depletion and
declining production from old resources can sometimes occur !efore ne# resources are
read to replace them. +his is, in part, the logical !asis of the Peak 1il theor. Although
individual oil #ells and mines for other nonrene#a!le resources are often depleted, the
availa!ilit of these resources has generall risen and their prices have dropped over the
long.run.
En#ironmental Im"act
+hose more optimistic a!out the environmental impacts of gro#th !elieve that, although
locali/ed environmental effects ma occur, large scale ecological effects are minor. +he
argument as stated ! commentators @ulian Aincoln 9imon states that if these glo!al.scale
ecological effects e%ist, human ingenuit #ill find #as of adapting to them.
!egative effects of economic growth
A num!er of critical arguments have !een raised against economic gro#th.
B23C
uality of life
$conomic gro#th ma reflect or create a decline in the *ualit of life, such as crime,
prisons, or pollution, in #hat is kno#n as uneconomic gro#th.
$rowth %to a "oint%
It ma !e that economic gro#th improves the *ualit of life up to a point, after #hich it
doesn=t improve the *ualit of life, !ut rather o!structs sustaina!le living. ;istoricall,
sustained gro#th has reached its limits &and turned to catastrophic decline) #hen
pertur!ations to the environmental sstem last long enough to desta!ilise the !ases of a
culture.
&onsumerism
'ro#th ma lead to consumerism ! encouraging the creation of #hat some regard as
artificial needsD Industries cause consumers to develop ne# taste, and preferences for
gro#th to occur. Eonse*uentl, ,#ants are created, and consumers have !ecome the
servants, instead of the masters, of the econom.,
En#ironmental Im"act
+he 2777 Fnited "ations '$1.4 report states that humans are living !eond their means.
;umanitGs environmental demand is purported to !e 21.9 hectares per person #hile the
$arthGs !iological capacit is purported to !e 13.7 haHperson. +his report reinstates the
!asic arguments and o!servations made ! +homas Malthus in the earl 1577s.
$conomic ine*ualit has increased0 the gap !et#een the poorest and richest countries in
the #orld has !een gro#ing..
9ome critics argue that a narro# vie# of economic gro#th, com!ined #ith glo!ali/ation,
is creating a scenario #here #e could see a sstemic collapse of our planet=s natural
resources. 1ther critics dra# on archaeolog to cite e%amples of cultures the claim have
disappeared !ecause the gre# !eond the a!ilit of their ecosstems to support them.
Eoncerns a!out possi!le negative effects of gro#th on the environment and societ led
some to advocate lo#er levels of gro#th, from #hich comes the ideas of uneconomic
gro#th and de.gro#th, and 'reen parties #hich argue that economies are part of a glo!al
societ and a glo!al ecolog and cannot outstrip their natural gro#th #ithout damaging
them.
Eanadian scientist, (avid 9u/uki stated in the 1997s that ecologies can onl sustain
tpicall a!out 1.3.I4 ne# gro#th per ear, and thus an re*uirement for greater returns
from agriculture or forestr #ill necessaril canni!ali/e the natural capital of soil or
forest. 9ome think this argument can !e applied even to more developed economies.
E'uitable $rowth
:hile ackno#ledging the central role economic gro#th can potentiall pla in human
development, povert reduction and the achievement of the Millennium (evelopment
'oals, it is !ecoming #idel understood amongst the development communit that
special efforts must !e made to ensure poorer sections of societ are a!le to participate in
economic gro#th. 6or instance, #ith lo# ine*ualit a countr #ith a gro#th rate of 24
per head and 474 of its population living in povert, can halve povert in ten ears, !ut a
countr #ith high ine*ualit #ould take nearl >7 ears to achieve the same reduction. In
the #ords of the 9ecretar 'eneral of the Fnited "ations Ban Ji.MoonD
,:hile economic gro#th is necessar, it is not sufficient for progress on reducing
povert.,
Kesearchers at the 1verseas (evelopment Institute compares situations such as in
Fganda, #here during a period of annual gro#th of 2.34 !et#een 2777 and 277I, the
percentage of people living in povert actuall increased ! I.54
BI2C
. +he 1(I thus
emphasi/es the need to ensure social protection is e%tended to allo# universal access and
that policies are introduced to encourage the private sector to create ne# -o!s as the
econom gro#s &as opposed to -o!less gro#th) and seek to emplo people from
disadvantaged groups.
Economic de#elo"ment
Defition-:
$conomic development refers to a sustaina!le increase in living standards. It implies
increased per capita income, !etter education and health as #ell as environmental
protection. $conomic development in its simplest form is the creation of economic
#ealth for all citi/ens #ithin the diverse laers of societ so that all people have access to
potential increased *ualit of life. @o! creation, economic output and increase in ta%a!le
!asis are the most common measurement tools. 1r #e can sa that Lualitative measure of
progress in an econom. It refers to development and adoption of ne# technologies,
transition from agriculture !ased to industr !ased econom, and general improvement in
living standards.
Economic de#elo"ment is the increase in the amount of people in a nation=s
population #ith sustained gro#th from a simple, lo#.income econom to a modern, high.
income econom. Its scope includes the process and policies ! #hich a nation improves
the economic, political, and social #ell.!eing of its people.
+he stud of economic development ! social scientists encompasses theories of
the causes of industrial.economic moderni/ation, plus organi/ational and related aspects
of enterprise development in modern societies. It em!races sociological research on
!usiness organi/ation and enterprise development from a historical and comparative
perspective0 specific processes of the evolution &gro#th, moderni/ation) of markets and
management.emploee relations0 and culturall related cross.national similarities and
differences in patterns of industrial organi/ation in contemporar :estern societies. 1n
the su!-ect of the nature and causes of the considera!le variations that e%ist in levels of
industrial.economic gro#th and performance internationall, it seeks ans#ers to such
*uestions asD ,:h are levels of direct foreign investment and la!our productivit
significantl higher in some countries than in othersM,
Mansell and :ehn state that development has !een understood since the second :orld
:ar to involve economic gro#th, increases in per capita income, and attainment of a
standard of living e*uivalent to that of industriali/ed countries.
$conom (evelopment can also !e considered as a static theor that documents
the state of econom at a certain time. According to 9chumpeter &277I)
.
the changes in
this e*uili!rium state to document in economic theor can onl !e caused ! intervening
factors coming from the outside.
Economic growth #ersus economic de#elo"ment
Economic de#elo"ment refers to social and technological progress. It implies a change
in the way goods and services are produced, not merel an increase in production
achieved using the old methods of production on a #ider scale. $conomic gro#th implies
onl an increase in *uantitative output0 it ma or ma not involve development.
$conomic gro#th is often measured ! rate of change of gross domestic product &eg.,
percent '(P increase per ear.) 'ross domestic product is the aggregate value.added !
the economic activit #ithin a countr=s !orders.
$conomic development tpicall involves improvements in a variet of indicators such
as literac rates, life e%pectanc, and povert rates. '(P does not take into account other
aspects such as leisure time, environmental *ualit, freedom, or social -ustice0 alternative
measures of economic #ell!eing have !een proposed.
A countr=s economic development is related to its human development, #hich
encompasses, among other things, health and education.
Intensi#e #ersus e(tensi#e growth
A closel related idea is the difference !et#een e%tensive and intensive economic gro#th.
$%tensive gro#th refers to the increase of overall #ealth, #hile intensive gro#th refers to
the increase of per capita #ealth. Fnlike e%tensive gro#th, intensive gro#th is mainl
driven ! productivit gro#th and technological progress. :hile economies in the pre.
industriali/ation period gre# e%tensivel, intensive gro#th is a relativel recent
phenomenon that came #ith modern economic gro#th.
Does growth create de#elo"ment)
(ependenc theorists argue that poor countries have sometimes e%perienced economic
gro#th #ith little or no economic development0 for instance, in cases #here the have
functioned mainl as resource.providers to #ealth industrialised countries. +here is an
opposing argument, ho#ever, that gro#th causes development !ecause some of the
increase in income gets spent on human development such as education and health.
According to Kanis et al. &2777), #e vie# economic gro#th to human development as a
t#o.#a relationship. Moreover, Kanis suggested that the first chain consist of economic
gro#th !enefiting human development #ith '"P. "amel, '"P increases human
development ! e%penditure from families, government and organi/ations such as "'1s.
:ith the increase in economic gro#th, families and individuals #ill likel increase
e%penditures #ith the increased in incomes, #hich leads to increase in human
development. 6urther, #ith the increased in e%penditures, health, education tend to
increases in the countr and later #ill contri!ute to economic gro#th.
In addition to increasing private incomes, economic gro#th also generate additional
resources that can !e used to improve social services &such as healthcare, safe drinking
#ater etc...). B generating additional resources for social services, une*ual income
distri!ution #ill !e limited as such social services are distri!uted e*uall across each
communit0 !enefiting each individual. +hus, increasing living standards for the pu!lic.
:e can vie# the relationship !et#een human development and economic development
in three different e%planations. 6irst, increase in average income leading to improved in
health and nutrition &kno#n as Eapa!ilit $%pansion through $conomic 'ro#th).
9econd, it is !elieved that social outcomes can onl !e improved ! reducing income
povert &kno#n as Eapa!ilit $%pansion through Povert Keduction). +hirdl, &kno#n as
Eapa!ilit $%pansion through 9ocial 9ervices), defines the improvement of social
outcomes #ith essential services such as education, health care, and clean drinking #ater.
Indian Economy *#er#iew
India is a 9outh Asian countr that is the seventh largest in area and has the second
largest population in the #orld. +he land covers an area of I,257,247 s*uare km &India
geograph) and the population stands at 1,272,I57,777 people &India population) . India
has great plains, long coastlines and ma-estic mountains. +hus, the land has a!undant
resources. India shares its !orders #ith Bangladesh, Pakistan, "epal, 9ri Aanka and
Manmar.
+nderstanding the Indian Economy
,arge, dynamic and steadily e("anding, the Indian economy is characteri-ed by a
huge wor.force o"erating in many new sectors of o""ortunity/
+he Indian econom is one of the fastest gro#ing economies and is the 12
th
largest in
terms of the market e%change rate at <1,242 !illion &India '(P). In terms of purchasing
po#er parit, the Indian econom ranks the fourth largest in the #orld. ;o#ever, povert
still remains a ma-or concern !esides disparit in income.
+he Indian econom has !een propelled ! the li!erali/ation policies that have !een
instrumental in !oosting demand as #ell as trade volume. +he gro#th rate has averaged
around 74 since 1997 and India #as a!le to keep its econom gro#ing at a health rate
even during the 2777.2779 recession, managing a 3.I334 rate in 2779 &India '(P
'ro#th). +he !iggest !oon to the econom has come in the shape of outsourcing. Its
$nglish speaking population has !een instrumental in making India a preferred
destination for information technolog products as #ell as !usiness process outsourcing.
+he econom of India is as diverse as it is large, #ith a num!er of ma-or sectors
including manufacturing industries, agriculture, te%tiles and handicrafts, and services.
Agriculture is a ma-or component of the Indian econom, as over >>4 of the Indian
population earns its livelihood from this area.
;o#ever, the service sector is greatl e%panding and has started to assume an
increasingl important role. +he fact that the Indian speaking population in India is
gro#ing ! the da means that India has !ecome a hu! of outsourcing activities for some
of the ma-or economies of the #orld including the Fnited Jingdom and the Fnited
9tates. 1utsourcing to India has !een primaril in the areas of technical support and
customer services.
1ther areas #here India is e%pected to make progress include manufacturing,
construction of ships, pharmaceuticals, aviation, !iotechnolog, tourism, nanotechnolog,
retailing and telecommunications. 'ro#th rates in these sectors are e%pected to increase
dramaticall.
(espite the li!erali/ation the econom still largel controlled ! the government and the
377N ma-or companies it o#ns, #hich together are #orth around F9<377 !illion, or
around 474 of '(P at current e%change rates. +hanks to past profligate spending,
government de!t is running at around 574 of '(P. 9ervicing the interest paments on
that de!t is no# the single largest component of the federal !udget. 6iscal discipline and
deficit reduction is therefore vital for India=s future prospects. It is also crucial to
understand that India is driven primaril ! domestic &consumer) consumption. +his
stands in marked contrast to @apan, the Asian +igers and no# Ehina, all of #hom have
follo#ed the e%port.oriented model. :ith the massive gro#th of the Indian middle class,
this vast countr ma !ecome Asia=s first ma-or =!u= econom.
Indian Economy: Statistics
In 2779, India=s PPP 'ross (omestic Product stood at <I.345 trillion, and #as the fourth
largest econom ! volume.
+he services sector, !acked ! the I+ revolution, remained the !iggest contri!utor to the
national '(P, #ith a contri!ution of 35.44. +he industr sector contri!uted 24.14 and
the agriculture sector contri!uted 17.34 to the '(P.
+he emploment scenario #as dominated ! the services sector, creating >2.>4 of the
-o!s for the 4>7 million #orkforce. +he industr sector contri!uted 23.54 to the '(P
and emploed 274 of the #orkforce. +he agriculture sector contri!uted 13.54 to the
'(P and created 17.34 -o!s &India Aa!or 6orce). +he unemploment rate remained
around 174 in 2779. ;o#ever, rising inflation !ecame a ma-or concern, and measures to
check it are !eing implemented. In 2779, the rate of inflation #as around 17.74 &India
Inflation Kate Ehange).
0he Po#erty &hallenge
1ne of the ma-or challenges for the Indian econom and those responsi!le for operating
it, is to remove the economic ine*ualities that are still persistent in India after its
independence in 1947. Povert is still one of the ma-or issues although these levels have
dropped significantl in recent ears. 1ver 234 of the #orking Indian populace is living
!elo# the povert line &India Povert Aine and 'ini Inde%).
Povert is a challenge thatGs !ecoming increasingl important in relationship to the
alarming rate of ne# !irths. +his implies that ever more rapid change, or !irth control
policies like the O1ne EhildG polic in Ehina, are needed to reduce the num!ers affected
! povert in the vast Indian econom.
+he per capita income of India is 4,342 F9 (ollars in the conte%t of Purchasing Po#er
Parit. +his is primaril due to the 1.1 !illion population of India, the second largest in
the #orld after Ehina. In nominal terms, the figure comes do#n to 1,759 F9 (ollars,
!ased on 2777 figures. According to the :orld Bank, India is classed as a lo#.income
econom.
$12
India is part of the '.27, 'roup of +#ent.
+he economy of India is the eleventh largest econom in the #orld ! nominal '(P and
the fourth largest ! purchasing po#er parit &PPP). 6ollo#ing strong economic reforms
from the socialist inspired econom of a post.independence Indian nation, the countr
!egan to develop a fast.paced economic gro#th, as free market activities initiated in 1997
for international competition and foreign investment. India is an emerging economic
po#er #ith a ver large pool of human and natural resources, and a gro#ing large pool of
skilled professionals. $conomists predict that ! 2727, India #ill !e among the leading
economies of the #orld.
India #as under social democratic.!ased policies from 1947 to 1991. +he econom #as
characterised ! e%tensive regulation, protectionism, pu!lic o#nership, pervasive
corruption and slo# gro#th. 9ince 1991, continuing economic li!eralisation has moved
the countr to#ards a market.!ased econom. A revival of economic reforms and !etter
economic polic in 2777s accelerated India=s economic gro#th rate. In recent ears,
Indian cities have continued to li!erali/e !usiness regulations. B 2775, India had
esta!lished itself as the #orld=s second.fastest gro#ing ma-or econom. ;o#ever, the
ear 2779 sa# a significant slo#do#n in India=s '(P gro#th rate to >.54 as #ell as the
return of a large pro-ected fiscal deficit of >.54 of '(P #hich #ould !e among the
highest in the #orld.
India=s large service industr accounts for 334 of the countr=s 'ross (omestic Product
&'(P) #hile the industrial and agricultural sector contri!ute 254 and 174 respectivel.
Agriculture is the predominant occupation in India, accounting for a!out 324 of
emploment. +he service sector makes up a further I44, and industrial sector around
144. +he la!or force totals half a !illion #orkers. Ma-or agricultural products include
rice, #heat, oilseed, cotton, -ute, tea, sugarcane, potatoes, cattle, #ater !uffalo, sheep,
goats, poultr and fish. Ma-or industries include telecommunications, te%tiles, chemicals,
food processing, steel, transportation e*uipment, cement, mining, petroleum, machiner,
information technolog ena!led services and soft#are.
India=s per capita income &nominal) is <1,7I7, ranked 1I9th in the #orld, #hile its per
capita &PPP) of F9<2,947 is ranked 125th. Previousl a closed econom, India=s trade has
gro#n fast. India currentl accounts for 1.34 of :orld trade as of 2777 according to the
:+1. According to the :orld +rade 9tatistics of the :+1 in 277>, India=s total
merchandise trade &counting e%ports and imports) #as valued at <294 !illion in 277> and
India=s services trade inclusive of e%port and import #as <14I !illion. +hus, India=s glo!al
economic engagement in 277> covering !oth merchandise and services trade #as of the
order of <4I7 !illion, up ! a record 724 from a level of <23I !illion in 2774. India=s
trade has reached a still relativel moderate share 244 of '(P in 277>, up from >4 in
1953.
Economic history of India
India=s economic histor can !e !roadl divided into three eras, !eginning #ith the pre.
colonial period lasting up to the 15th centur. +he advent of British colonisation
started the colonial period in the earl 19th centur, #hich ended #ith
inde"endence in 1947. +he third period stretches from independence in 1947
until no#. +he kno#n $conomic histor of India !egins #ith the Indus 3alley
ci#ili-ation.
Pre-colonial
+he citi/ens of the Indus Palle civilisation, a permanent settlement that flourished
!et#een 2577 BE and 1577 BE, practiced agriculture, domesticated animals, used
uniform #eights and measures, made tools and #eapons, and traded #ith other cities.
$vidence of #ell planned streets, a drainage sstem and #ater suppl reveals their
kno#ledge of ur!an planning, #hich included the #orld=s first ur!an sanitation sstems
and the e%istence of a form of municipal government. Assessment of India=s pre.colonial
econom is mostl *ualitative, o#ing to the lack of *uantitative information.
&olonial
Eompan rule in India !rought a ma-or change in the ta%ation environment from revenue
ta%es to propert ta%es, resulting in mass impoverishment and destitution of ma-orit of
farmers and led to numerous families.+he economic policies of the British Ka- effectivel
!ankrupted India=s large handicrafts industr and caused a massive drain of India=s
resources. Indian "ationalists emploed the successful 9#adeshi movement, as strateg
to diminish British economic superiorit ! !ocotting British products and the reviving
the market for domestic.made products and production techni*ues. India had !ecome a
strong market for superior finished $uropean goods. +his #as !ecause of vast gains made
! the Industrial revolution in $urope, the effects of #hich #as deprived to Eolonial
India.
+he "ationalists had hoped to revive the domestic industries that #ere !adl effected !
polices implemented ! British Ka- #hich had made them uncompetitive to British made
goods.
Aeaders of the Indian independence movement, and left.nationalist economic historians
have !lamed colonial rule for the dismal state of India=s econom in its aftermath and that
financial strength re*uired for Industrial development in $urope #as derived from the
#ealth taken from Eolonies in Asia and Africa. At the same time right.#ing historians
have countered that India=s lo# economic performance #as due to various sectors !eing
in a state of gro#th and decline due to changes !rought in ! colonialism and a #orld
that #as moving to#ards industriali/ation and economic integration.
Inde"endence to 4554
Eompare India &orange) #ith 9outh Jorea &ello#). Both started from a!out the same
income level in 1937. +he graph sho#s '(P per capita of 9outh Asian economies and
9outh Jorea as a percent of the American '(P per capita. Indian economic polic after
independence #as influenced ! the colonial e%perience &#hich #as seen ! Indian
leaders as e%ploitative in nature) and ! those leaders= e%posure to 6a!ian socialism.
Polic tended to#ards protectionism, #ith a strong emphasis on import su!stitution,
industriali/ation, state intervention in la!or and financial markets, a large pu!lic sector,
!usiness regulation, and central planning. 6ive.Qear Plans of India resem!led central
planning in the 9oviet Fnion. 9teel, mining, machine tools, #ater, telecommunications,
insurance, and electrical plants, among other industries, #ere effectivel nationali/ed in
the mid.1937s. Eapitalism and Private sector did not e%ist !efore 1991. $la!orate
licences, regulations and the accompaning red tape, commonl referred to as Aicence
Ka-, #ere re*uired to set up !usiness in India !et#een 1947 and 1997.
@a#aharlal "ehru, the first prime minister, along #ith the statistician Prasanta Ehandra
Mahalano!is, carried on ! Indira 'andhi formulated and oversa# economic polic.
+he e%pected favora!le outcomes from this strateg, !ecause it involved !oth pu!lic and
private sectors and #as !ased on direct and indirect state intervention, rather than the
more e%treme 9oviet.stle central command sstem.+he polic of concentrating
simultaneousl on capital. and technolog.intensive heav industr and su!sidi/ing
manual, lo#.skill cottage industries #as critici/ed ! economist Milton 6riedman, #ho
thought it #ould #aste capital and la!our, and retard the development of small
manufacturers. +he rate from 1947R57 #as derisivel referred to as the ;indu rate of
gro#th, !ecause of the unfavoura!le comparison #ith gro#th rates in other Asian
countries, especiall the ,$ast Asian +igers,.
+he Kockefeller 6oundation=s research in high.ielding varieties of seeds, their
introduction after 19>3 and the increased use of fertili/ers and irrigation are kno#n
collectivel as the 'reen Kevolution in India, #hich provided the increase in production
needed to make India self.sufficient in food grains, thus improving agriculture in India.
6amine in India, once accepted as inevita!le, has not returned since independence.
Since 4554
In the late 57s, the government led ! Ka-iv 'andhi eased restrictions on capacit
e%pansion for incum!ents, removed price controls and reduced corporate ta%es. :hile
this increased the rate of gro#th, it also led to high fiscal deficits and a #orsening current
account. +he collapse of the 9oviet Fnion, #hich #as India=s ma-or trading partner, and
the first 'ulf :ar, #hich caused a spike in oil prices, caused a ma-or !alance.of.
paments crisis for India, #hich found itself facing the prospect of defaulting on its loans.
India asked for a <1.5 !illion !ailout loan from IM6, #hich in return demanded reforms.
In response, Prime Minister "arasimha Kao along #ith his finance minister and current
Prime Minister of India (r. Manmohan 9ingh initiated the economic li!erali/ation of
1991. +he reforms did a#a #ith the Aicence Ka- &investment, industrial and import
licensing) and ended man pu!lic monopolies, allo#ing automatic approval of foreign
direct investment in man sectors. 9ince then, the overall direction of li!eralisation has
remained the same, irrespective of the ruling part, although no part has tried to take on
po#erful lo!!ies such as the trade unions and farmers, or contentious issues such as
reforming la!our la#s and reducing agricultural su!sidies. 9ince 1997 India has a free.
market econom and emerged as one of the fastest.gro#ing economies in the developing
#orld0 during this period, the econom has gro#n constantl, !ut #ith a fe# ma-or
set!acks. +his has !een accompanied ! increases in life e%pectanc, literac rates and
food securit.
:hile the credit rating of India #as hit ! its nuclear tests in 1995, it has !een raised to
investment level in 2777 ! 9SP and Mood=s. In 277I, 'oldman 9achs predicted that
India=s '(P in current prices #ill overtake 6rance and Ital ! 2727, 'erman, FJ and
Kussia ! 2723 and @apan ! 27I3. B 27I3, it #as pro-ected to !e the third largest
econom of the #orld, !ehind F9 and Ehina. India is often seen ! most economists as a
rising economic superpo#er and is !elieved to pla a ma-or role in the glo!al econom in
the 21st centur. In 2779 India purchased 277 +ons of 'old for <>.7 !illion from IM6 as
a total role reversal from 1991.
SE&0*!S
Primary Sector
:hen the economic activit depends mainl on e%ploitation of natural resources then that
activit comes under the primar sector. Agriculture and agriculture related activities are
the primar sectors of econom. +he Primar sector of the econom is the change of
natural resources into primar products. Most products from this sector provides ra#
materials for other industries. +he share of primar sector has decreased from the past
four decades. In 1977 the share of the sector #as 374 #hich has reduced to 294 in 1993
and is no# further reduced to 234. Ma-or !usinesses in this sector are agriculture,
agri!usiness, fishing, forestr, all mining and *uarring industries.
6griculture
Agriculture in India is the ma-or sector of its econom. Almost t#o.thirds of the total
#ork.force earns their livelihood though farming and other allied sectors like forestr,
logging and fishing #hich account 154 of the '(P. +hese sectors provide emploment
to >74 of the countrGs total population. A!out 4I4 of the countrGs total geographical
area is used for agricultural purposes. After independence additional areas #ere !rought
under cultivation and ne# methods, practices and techni*ues of irrigation and farming
#ere introduced ! the government. +he T'reen KevolutionU and T1peration 6loodU in
the countr have made India self sufficient in producing food grains and milk. Among
other things, the government also tried to decrease the dependence on monsoons. Better
seeds, use of fertili/er, education of farmers and provision of agricultural credit and
su!sidies are reasons for increase in agricultural productivit.
+oda, India is the ma-or producer of milk, cashe# nuts, coconuts, tea, ginger, turmeric
and !lack pepper in the #hole #orld. It is the second largest producer of #heat, sugar,
groundnut and inland fish. It is the third largest producer of to!acco and rice. India
accounts for 17 per cent of the #orld fruit production #ith first rank in the production of
!anana.
Agriculture in India is the responsi!ilit of the states rather than the central government.
+he central government formulates polic and provides financial assistance to the states.
9tates like Pun-a!, ;arana, Fttar Pradesh, Andhra Pradesh, +amil "adu, Jarnataka and
:est Bengal are ma-or producers of food grains in India. ;imachal Pradesh and @ammu
and Jashmir are famous for fruit production. +ea is produced in the high altitudes of
Assam, (ar-eeling in :est Bengal, +ripura, 1ot in +amil "adu, ;imachal Pradesh and
Jerala. Jerala is also the largest producer of natural ru!!er and spices in India. Ka-asthan
is among the ma-or producers of edi!le oils in India and second largest producer of oil
seeds. Production of non.conventional items like moong &a tpe of lentil), soa!eans and
peanuts are graduall gaining importance. $ven though there has !een a stead decline in
its share in the '(P, agriculture still remains the largest economic sector and plas a
crucial role in the socio.economic development of the countr.
7ishing
6ish !reeding has increased almost five times since India got independence and is a prime
industr in coastal regions. +he economic /one of India runs up to Indian ocean &I77
Jm) covering an area more than 2 million s*uare kilometers. Appro%imatel 4.3 million
ton catches are e%pected from that area. India has a!out 14777 Jm2 !rackish #ater for
a*uaculture, out of #hich >77 Jm2 #ere !eing farmed in earl 1997s0 a!out 1>,777 Jm2
of fresh#ater lakes, ponds and s#amps0 and nearl >4,777 kilometers of rivers and
streams.
Mining
Mining is the term used for the e%traction of useful material from the treatment of ore,
vein or coal seam. Materials o!tained from e%traction ma !e !ase metals, precious
metals, iron, uranium, coal, diamonds, limestone, oil shale, rock salt and potash. An
material o!tained from agriculture or cultured in la!orator re*uires to !e mined.
Secondary Sector
:hen the main activit involves manufacturing then it is the secondar sector. All
industrial production #here phsical goods are produced come under the secondar
sector. +he secondar sector of the econom includes those economic sectors that create a
finished usa!le product and hence depend on primar sector industries for the ra#
materials. +his sector includes Mining, manufacturing and construction. +he secondar
sector contri!utes 244 of the share in Indian econom.
Industry
IndiaGs industrial sector accounts for 27.>4 of the '(P and gives emploment to 174 of
the total #orkforce. +hough agriculture is the foremost occupation of the ma-orit of the
people, the government had al#as laid stress on the industrial development of the
countr. +hus policies and strategies #ere framed to give a !oost to IndiaGs industr. +he
government aims at achieving self.sufficienc in production and protection from foreign
competition. 9ince independence, India is marching ahead to !ecome a diverse industrial
!ase.
+oda India holds some ke industries in the sectors like steel, engineering and machine
tools, electronics, petrochemicals, te%tiles and soft#are. Importance has also !een give to
improve the infrastructure of the countr. +he government has li!erali/ed its industrial
polic there! attracting huge foreign direct investment. If on one hand several
multinational companies opened their offices in India, on the other hand man Indian
companies started their operations in foreign countries.
&onstruction
+he process of !uilding or assem!ling of infrastructure is kno#n as a term commonl
used in architecture and civil engineering. TconstructionU. Eonstruction -o! is all a!out
multitasking and needs the services from pro-ect manager, construction manager, design
engineer, construction engineer and pro-ect architect.
0ertiary Sector
:hen the activit involves providing intangi!le goods like services then this is part of the
tertiar sector. 6inancial services, management consultanc, telephon and I+ are good
e%amples of service sector. +he +ertiar sector includes service industr and it holds the
highest importance among all sectors. +he tertiar sector of econom involves the
provision of services to !usiness as #ell as final consumers. 9ervices ma involve the
transport, distri!ution and sale of goods from producer to consumers as ma happen in
#holesaling and retailing, or ma involve the provision of a service, such as in pest
control or entertainment. +he tertiar sectors account for 314 of the '(P.
+he tertiar sectors ma includeD
Insurance
Banking
+ransport
+he higher the productivit in primar and secondar sector and lo#er the emploment
in these sectors, the !etter it is. People need more and more services for leading
*ualitativel !etter lifestle. +he need more means of transport, more communication
and educational facilities, more training, more medical facilities, entertainment, technical
facilities, !anking facilities etc.
+ertiar sector depends on scientific research and innovative developments to increases
productivit and it provides engineering and construction consultanc support services
for all pro-ects in all sectors. (eveloped countries emplo more than 574 the services
sector.
India is the fifteenth largest countr in the #orld in terms of services= output. +his sector
provides emploment to 2I4 of the #orkforce and is the fastest gro#ing sector, #ith a
gro#th rate of 7.34 in 1991R2777 up from 4.34 in 1931R57. It has the largest share in
the '(P, accounting for 3I.54 in 2773 up from 134 in 1937.
Business services like information technolog, information technolog ena!led services,
!usiness process outsourcing contri!ute to one third of the total output of services in
2777.
+he gro#th in the I+ sector is due to the availa!ilit of a large pool of lo# cost and
highl skilled, educated and fluent $nglish.speaking people. 6oreign clients have also
e%pressed their interest in outsourcing much of their operations to India $%cellent
infrastructure in the service sector and the lo#est communication cost has helped India to
!e a dominant plaer in these sectors.
Insurance
+he concept of Insurance dates long !ack in 1515. Aife Insurance premium accounts for
2.34 of the nationGs '(P #hile general insurance contri!utes 7.>34 of IndiaGs '(P.
'overnment of India opened gate for private insurance companies to enter the arena and
6(I of 2>4 in the Insurance sector in 1999 untill then onl AIE #as there to provide
insurancefacilities.
Private Insurance companies like IEIEI, Ma% "e#ork, Ba-a- allian/, Jotak Mahindra,
Metlife are providing life insurance
E#olution of an Economy from Primary Sector 8ased to 0ertiary Sector
8ased
(uring earl civili/ation all economic activit #as in primar sector. :hen the food
production !ecame surplus peopleGs need for other products increased. +his led to the
development of secondar sector. +he gro#th of secondar sector spread its influence
during industrial revolution in nineteenth centur.
After gro#th of economic activit a support sstem #as the need to facilitate the
industrial activit. Eertain sectors like transport and finance pla an important role in
supporting the industrial activit. Moreover, more shops #ere needed to provide goods in
peopleGs neigh!ourhood. Fltimatel, other services like tuition, administrative support
developed.
Interde"endency of Sectors:
+o understand this interdependenc, let us take an e%ample of a cold drink. A cold drink
contains #ater, sugar and artificial flavour. 9uppose if there is no sugarcane production
then procuring sugar #ill !ecome difficult and costl for the cold drink manufacturer.
"o# to transport sugarcane to sugar mills and sugar to the cold drink plant needs the
services of a transporter. A person or sstem of persons is re*uired to maintain and
monitor all these movements of goods from farm to factor to shop in different locations.
+hat is #here role of administrative staffs comes. Aet us go !ack to the farmer. ;e also
needs feritlisers and seeds #hich is processed in some factor and #hich #ill !e
delivered to his doorstep ! some means of transportation. +o top it all at ever step of
these activities #e re*uire the proper monetar and !anking sstem.
*ther &lassifications of Economy
*rganised Sector
+he sector #hich carries out all activit through a sstem and follo#s the la# of the land
is called organi/ed sector. Moreover, la!our rights are given due respect and #ages are as
per the norms of the countr and those of the industr. Aa!our #orking organi/ed sector
get the !enefit of social securit net as framed ! the 'overnment. Eertain !enefits like
provident fund, leave entitlement, medical !enefits and insurance are provided to #orkers
in the organi/ed sector.
+hese securit provisions are necessar to provide source of sustenance in case of
disa!ilit or death of the main !read#inner of the famil. 1ther#ise the dependents #ill
face a !leak future.
+norganised Sector:
+he sector #hich evade most of the la#s and donGt follo# the sstem come under
unorgani/ed sector. 9mall shopkeepers, some small scale manufacturing units keep all
their attention on profit making and ignore their #orkers !asic rights. :orkers donGt get
ade*uate salar and other !enefits like leave, health !enefits and insurance are !eond the
imagination of people #orking in unorgani/ed sectors.
Public Sector
Eompanies #hich are run and financed ! the 'overnment comprise the pu!lic sector.
After independence India #as a ver poor countr. India needed huge amount of mone
to set up manufacturing plants for !asic items like iron and steel, aluminium, fertili/ers
and cements. Additionall infrastructure like roads, rail#as, ports and airports also
re*uire huge investment. In those das Indian entrepreneur #as not cash rich so
government had to start creating !ig pu!lic sector enterprises like 9AIA &9teel Authorit
of India Aimited), 1"'E&1il S "atural 'as Eomission).
Pri#ate Sector
Eompanies #hich are run and financed ! private people comprise the private sector.
Eompanies like ;ero ;onda, +ata are from private sectors.
N60I*N6, IN&*ME
Definition-:
+he income earned ! a countr=s people, including la!or and capital
investment. the total value of all income in a nation &#ages and profits and interest and
rents and pension paments) during a given period &usuall 1 r).
@.M.Jenes, a famous economist defined national income as follo#s.,"ational Income is
the mone value of all goods and services produced in a countr during a ear.,
:hile famil income reflects the economic position of households, national income
sho#s the economic position of a nation. +he !asic o!-ective of an econom is to achieve
economic progress. +his is achieved ! coordinating natural resources, human resources,
capital, technolog etc. "ational income #ill help to assess and compare the progress
achieved ! a countr over a period of time. Aet us see #h the stud of national income
is given so much importance.
+o estimate economic development.
+o kno# ho# far development o!-ectives #ere achieved.
+o kno# the contri!ution of various sectors to national income.
Internationall some countries are #ealth, some countries are not #ealth and
somecountries are in.!et#een. Fnder such circumstances, it #ould !e difficult to evaluate
the performance of an econom. Performance of an econom is directl proportionate to
the amount of goods and services produced in an econom. Measuring national income is
also important to chalk out the future course of the econom. It also !roadl indicates
peopleGs standard of living.
Income can !e measured ! 'ross "ational Product &'"P), 'ross (omestic Product
&'(P), 'ross "ational Income &'"I), "et "ational Product &""P) and "et "ational
Income &""I).
In India the Eentral 9tatistical 1rgani/ation has !een formulating national income.
Methods of calculating National Income
"ational Income calculation is not an eas task. 6or this, #e have to collect more facts
and figures. Income is generated through production process. "ormall #e use this
income for purchasing goods and services. :hen demand for commodities goes up, #e
have to produce more. +hus income leads to e%penditure #hich again leads to increased
production. 9ee the follo#ing figure/


+his figure given a!ove sho#s ho# production, income and e%penditure are mutuall
related. $conomic activit is directl related to these three stages. Based on this, three
methods are used for calculating national income. +he areD
Production method
Income method
$%penditure method
Production Method
+his method is !ased on the total production of a countr during a ear. 6irst of all
production units are classified into primar, secondar and tertiar sectors .
+hen #e identif the various units that come under these sectors. :e estimate the goods
and services produced in each of these sectors. +he sum total of products produced in
these three sectors is the total output of the nation. +he ne%t step is to find out the value
of these products in terms of mone. +he mone sent ! Indian citi/ens #orking a!road
is also added to this. "o# #e get the gross national income.
$NI 9 Money #alue of total goods and ser#ices : Income from abroad/
+his method helps us to find out contri!utions of various sectors to national income.
Income Method
6actors of production together produce output and income. +he income received ! the
factors of production during a ear can !e o!tained ! adding rent to land, #ages to
la!our, interest to capital and profit to organisations. +his #ill !e e*ual to the income of
the nation. In other #ords, total income is e*ual to the re#ard given to various factors of
production. B adding the mone sent ! the Indian citi/ens from a!road to the income
of the various factors of production, #e get the gross national income.
$NI 9 !ent : ;age : Interest : Profit : Income from abroad/
+his method #ill help us to kno# the contri!utions made ! different agents like
landlords, la!ourers, capitalists and organi/ers to national income.

E("enditure Method
"ational income can also !e calculated ! adding up the e%penditure incurred for goods
and services. 'overnment as #ell as private individuals spend mone for consumption
and production purposes. +he sum total of e%penditure incurred in a countr during a ear
#ill !e e*ual to national income.
$NI 9 Indi#idual E("enditure : $o#ernment E("enditure/
+his method #ill help us to identif the e%penditure incurred ! different agents.
National Income calculation in India
+he first attempt to calculate national income of India #as made ! (ada Bai "aoro-i in
15>7.>5. +his #as follo#ed ! several other attempts. +he first scientific attempt #as
made ! Prof.P.J.K.P.Kao in 19I1.I2. But it #as not a satisfactor attempt. +he first
official attempt #as made ! Prof.P.E.Mahalano!is in 1945. 49. +he final report #as
su!mitted in 1934. +oda national income is calculated and pu!lished ! the Eentral
9tatistical 1rganisation. All the three methods are used for calculating national income in
India.
0rends in India<s national income-
+he real national income of India is increased at an annual average rate of 4.44 during
the 33 ears of economic planning if #e consider the last 14 ears #e find that the rate of
increase in national income is >4 per annum. (uring the 17
th
five ear plan government
set the target of 54 gro#th rate !ut achieved 7.>4 , this encouraged the 11
th
planner to
set atarget of 5.34 of gro#th rate per annum. +he net national income &""I) at factor
cost, also kno#n as national income, at 2774.73 prices is likel to !e Ks. I9,24,15I crore
during 2779.17, as against the previous ear=s Luick $stimate of Ks. I>,72,192 crore. In
terms of gro#th rates, the national income is e%pected to rise ! >.9 per cent during 2779.
17 in comparison to the gro#th rate of >.4 per cent in 2775.79.
!an. 11th
&urrency 1 Indian Kupee &I"K) & ) V 177 Paise
7iscal year 1 April ? I1 March
0rade
organi-ations
:+1, 9A6+A, '.27 and others
Statistics
$DP
<1.237 trillion &nominalD 11th0 2779)
<I.32> trillion &PPPD 4th0 2779)
$DP growth 7.44 &2779H2717)
$DP "er ca"ita <1,7I1 &nominalD 1I9th0 2779)
<2,941 &PPPD 125th0 2779)
$DP by sector agriculture &17.34), industr &274), services &>2.34)
&2779 est.)
Inflation &EPI) 17.334 &@une 2717)
6ood inflation &9.3I4) &Aug 2717)
,abour force 4>7 million &2nd0 2779)
,abour force agriculture &324), industr &144), services &I44)
by occu"ation &277I)
+nem"loyment 17.74 &2717 est.)
B3C
Main industries telecommunications, te%tiles, chemicals, food
processing, steel, transportation e*uipment, cement,
mining, petroleum, machiner, information
technolog
E(ternal
E("orts <17>.3 !illion &15th0 2779)
E("ort goods soft#are, petroleum products, te%tile goods, gems and
-e#elr, engineering goods, chemicals, leather
manufactures
Main e("ort
"artners
F9 12.I4, FA$ 9.44, Ehina 9.I4 &2775)
Im"orts <257.3 !illion &13th0 2779)
Im"ort goods crude oil, machiner, gems, fertili/er, chemicals
Main im"ort
"artners
Ehina 11.14, 9audi Ara!ia 7.34, F9 >.>4, FA$
3.14, Iran 4.24, 9ingapore 4.24, 'erman 4.24
&2775)
Workforce participation
Eontrar to the common perception, a large percent of #omen in India #ork. +he
"ational data collection agencies accept the fact that there is a serious under.estimation
of #omen=s contri!ution as #orkers. ;o#ever, there are far fe#er #omen in the paid
#orkforce than there are men. In ur!an India :omen have impressive num!er in the
#orkforce. As an e%ample at soft#are industr I74 of the #orkforce is female. +he are
at par #ith their male counter parts in terms of #ages, position at the #ork place.
In rural India, agriculture and allied industrial sectors emplo as much as 59.34 of the
total female la!our. In overall farm production, #omen=s average contri!ution is
estimated at 334 to >>4 of the total la!our. According to a 1991 :orld Bank report,
#omen accounted for 944 of total emploment in dair production in India. :omen
constitute 314 of the total emploed in forest.!ased small.scale enterprises.
1ne of the most famous female !usiness success stories is the 9hri Mahila 'riha Fdog
Ai--at Papad. In 277>, Jiran Ma/umdar.9ha#, #ho started Biocon . one of India=s first
!iotech companies, #as rated India=s richest #oman. Aalita 'upte and Jalpana Morparia
&!oth #ere the onl !usiness#omen in India #ho made the list of the 6or!es :orld=s
Most Po#erful :omen), run India=s second.largest !ank, IEIEI Bank.
occu"ational structure
occupational structure +his refers to the aggregate distri!ution of occupations in societ,
classified according to skill level, economic function, or social status. +he occupational
structure is shaped ! various factorsD the structure of the econom &the relative #eight of
different industries)0 technolog and !ureaucrac&the distri!ution of technological skills
and administrative responsi!ilit)0 the la!our.market &#hich determines the pa and
conditions attached to occupations)0 and ! status and prestige &influenced !
occupational closure, life.stle, and social values). It is difficult to attach causal primac
to an one of these factors0 moreover, their role in shaping the occupational structure
changes over time, as societ changes.