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).