INDIAN ECONOMY

BBA 3rd Semester

WHAT IS ECONOMY?

An economy consists of the economic systems of a country or other area; the labor, capital and land resources; and the manufacturing, production, trade, distribution, and consumption of goods and services of that area.
All professions, occupations, economic agents or economic activities, contribute to the economy. Consumption, saving, and investment are variable components in the economy. There are three main sectors of economic activity: primary, secondary, and tertiary.
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ECONOMIC GROWTH & DEVELOPMENT

Economic Growth: Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP
Economic Development: Economic Development is a process whereby an economys real National Income as well as Per Capita Income increases over a long period of time
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SNAPSHOT
World Economy expected to decline further
World GDP Growth Rate

Indias growth has also slowed down

FY 12 6.5%

DIFFERENCE BETWEEN ECONOMIC GROWTH & ECONOMIC DEVELOPMENT

Economic Growth
Economic Growth relates to optimum utilization and development of under-utilized resources of developed countries

Economic Development
Economic Development relates to the utilization and development of unused resources in the underdeveloped countries

Utilization

Growth

Growth relates to a steady, general and gradual increase in the rate of savings and output and investment

Development relates to growth of a stationary state to a higher level of equilibrium

Definition

Economic growth is the increase in the amount of goods and services produced by an economy over time.

Economic Development refers to the Overall Progress in an economy

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DIFFERENCE BETWEEN ECONOMIC GROWTH & ECONOMIC DEVELOPMENT

Economic Growth
Brings quantitative changes in the economy

Economic Development
Brings both qualitative quantitative changes in economy and the

Effect

Scope

Growth is concerned with small changes in the economy

It is concerned with whole changes in the economy

Implication

It refers to an increase in the real output of goods and services in the country like increase in income, savings, investment etc.

It implies changes in income, saving and investment along with progressive changes in socioeconomic structure of country 6 (institutional and technological changes)

INDIAN ECONOMY: AN OVERVIEW

Indian economy is an under developed economy. Agriculture is the back bone of Indian economy, so India is called an agrarian economy. 60% of Indias population are on the below poverty line.

Structure of economy has not changed drastically in last 50yrs.

Literacy is one of the important measures of social development.

50yrs of economic planning in India has resulted in remarkable improvement in social sectors like education and health. India is a poor land, so there is a lack of utilization of resources in the country.
There is large amount of unemployment in the country.

India is facing the problem of population explosion.

Indias Per Capita Income: 1950-51 : Rs. 255 2000-01 : Rs. 16,500 2009-10 : Rs. 26,000 2011-12 : Rs. 53,333

CHARACTERISTICS OF INDIAN ECONOMY

Low Per Capita Income India per capital income is very low as compared to the advanced countries. The level of income as measured by per capita GNI (GDP + net receipts from foreign sources) is very low. According to World Development Report 2012, India was one of the 51 low income economies in 2010.

Indias PPP (per capita) was only US $ 3,560 in 2010, while that of high income economies averaged to US $ 37,183. Australia - 38,510 Austria - 39,410 Belgium - 37,840 Ireland - 32,740

 Low

Standard of Living In India the general level of

living tends to be very low for the vast majority of people. It is clear from low income, poor housing, poor health, poor education, high infant mortality rate, low life expectancy. On the other hand, in developed countries , healthy and educated population leads to increased productivity.

Facts according to Human Development Report, 2011: Total population = 1171 million Total Unemployment Rate = 6.6% Adult Literacy Rate = 63% Population Below Poverty Line = 27.5%
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 Heavy

Population Pressure - The Indian economy is

facing the problem population explosion. It is clearly evident from the total population of India. India has the second highest population and is in the stage of population explosion. Fast growing population is both the cause and effect of under-development.

Population = 1171 million (2010) Average annual growth = 1.4 % Density (people per sqkm) = 389 (2009)

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Widespread Poverty Widespread poverty prevails

in all UDCs. International poverty line has been drawn at an expenditure of US $ 1.25 per person per day. On this basis, almost one-fourth of the worlds population is living below the poverty line. National poverty line makes estimates of poverty consistent with countrys specific economic and social circumstances. Population below $2 a day Population below $1.25 a day = 81.7 (2005) = 49.4 (2005)
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Pre-dominance of Agriculture - India is agrarian in

nature. Agriculture in India is not technologically advanced as in developed country.

In India, agriculture contributes 14.5% to the GDP in 2010-11. Total people employed are estimated around 58%. The remaining 42% of labor force that is engaged in non-agricultural occupation is generating 85.5% of GDP.
It shows Indias underdeveloped nature because as a country develops, the percentage share of agriculture in GDP must go down.

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Low Levels of Productivity Productivity means

output produced per person of work force. In India, Productivity levels are very low mainly because: i) Less use of capital in the form of modern machines and equipment , ii) less efficiency in the work force due to poor health and poverty, and iii) Low work culture due to lack of incentives and disciplines.

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 High

levels of Unemployment In UDCs labor is an

abundant factor. It is not possible to provide gainful employment to the entire population. Indias unemployment is structural in nature. It is associated with inadequacy of productive capacity to create enough jobs for all those able and willing to work.

In India, Labor force is growing at a rate of 2.84% annually, but employment is growing at the rate of 2.62%. The rate of unemployment is nearly 6.6%.

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Technological Backwardness Its a permanent

feature of Indian economy. India is suffering from technological backwardness which is clear from following : (i) Obsolete techniques of production (ii) Lack of irrigation facilities (iii) Lack of modern cropping pattern (iv) Poor infrastructure (v) Use of Primitive methods of production

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Poor Quality of Human Capital - Main problems of

human capital formation in India are:

(i) High regional and gender inequality (ii) Brain drain from country (iii) Insufficient on-the-job training (iv) High Poverty level (v) Migration of skilled professionals to other countries

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Others
Low social development

Dominance and Dependence on international relations

High Birth Rate High infant mortality rate Low education and health facilities

High Inequality of Income

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FACTORS IN ECONOMIC DEVELOPMENT

Economic development of every economy depends on many factors, each of which effects the economic development in various ways and is being influenced by them. The process of economic development is a complex one. Economic development has much to do with human endowments, social attitude, political conditions and historic accidents.

The factors affecting development are: Economic Factors Non-economic Factors

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ECONOMIC FACTORS
Natural Resources Human Resources Capital formation Technological Development Entrepreneurship Foreign Capital Innovation Occupational Structure

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NON-ECONOMIC FACTORS

Social Factors Institutional Factors Political Factors Regional Factors Cultural Factors Religious Factors

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STRUCTURE OF INDIAN ECONOMY

Indian economy is divided into three broad sectors. These sectors (and sub-sectors) are as follows: 1. Primary Sector This sector produces goods by exploiting natural resources like land, water, forests, mines, etc. Sub-sectors of agriculture and allied activities are: (a) Agriculture, forestry and fishing (b) Mining and Quarrying.
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2. Secondary Sector- It includes mainly industrial activities. The sub-sectors of secondary sector are: (a)Manufacturing (i) Registered (ii) Unregistered (b) Construction (c) Electricity, Gas and Water supply

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3. Tertiary Sector It includes all the services

sector of the economy. The sub-sectors of tertiary sector are: (a) Trade, Hotels, Transport and Communication (b) Financing, Insurance, Real estate and Business services (c) Community, Social and Personal services.

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CHANGES IN THE STRUCTURE OF INDIAN ECONOMY

The structure of GDP at factor cost refers to the share of primary, secondary and tertiary sectors in the GDP at factor cost. Structural changes in output refer to the changes in relative contribution of the three sectors in GDP (at factor cost) over the years.

As an economy grows, importance of primary sector (mainly agriculture) declines and the importance of secondary sector (mainly industry) and tertiary sector (all kinds of services) increases.
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FIVE YEAR PLANS

PLAN First Plan Second Plan DURATION 1951-56 1956-61 GROWTH RATE OF N.I 4.2 4.2

Third Plan
Annual Plan Fourth Plan Fifth Plan Annual Plan Sixth Plan Seventh Plan Two Annual Plans Eighth Plan Ninth Plan Tenth Plan

1961-66
1966-69 1969-74 1974-79 1979-80 1980-85 1985-99 1990-92 1992-97 1997-2002 2002-2007

2.6
3.7 3.2 4.9 -5.9 5.4 5.5 2.8 6.7 5.5 7.5
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Eleventh Plan

2007-2012

7.7

During the First plan, annual growth rate of NNP was 4.2%, which remained stagnant at 4.2% during the Second Plan. However, during the Third Plan, annual average increase in national income slumped down to 2.6% which was just sufficient to neutralize the growth of population.
During the Fourth Plan (1969-74) period, the average annual rate of growth of national income was 3.2%. The sharp increase in prices during 1972-74 and the shortfalls in production on account of lower utilization of capacity were the principal factors responsible for a lower growth rate during this plan.

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During the Fifth Plan (1974-79), the average annual increase in national income was of the order of 4.9%. On the whole performance during this plan was satisfactory. Indias national income registered a growth rate of 5.4% during the Sixth Plan (1980-85).
During the Seventh Plan (1985-90), Indias NNP grew on an average at the rate of 5.5% per annum. Seventh Plan achieved its objective of 5% growth rate of NNP. This was a welcome development in the country.

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During the Eight Plan (1992-97), NNP growth rate at 6.5% was achieved. This was a healthy trend.
During the Ninth Plan (1997-2002), national income recorded growth rate of 5.5% per annum. During the Tenth Plan (2002-2007), growth of national income was 7.5% per annum. During the Eleventh Plan (2007-2012), national income recorded a growth rate of 7.7%.

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OVERALL GDP GROWTH RATE

Rate of Growth of GDP (at Factor Cost)

9.5

9.6

9.3 8.4

7.5 6.7 6.9

2004-05

2005-06

2006-07

2007-08

2008-09

2010-11

2011-12

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REASONS FOR THE SLOWDOWN

Crisis in Eurozone Near recessionary conditions prevailing in Europe Sluggish growth in industrialized countries like USA Stagnation in Japan

Hardening international prices of crude oil

Tightening of domestic monetary policy (raising the reporate)
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WAYS TO RAISE NATIONAL INCOME IN INDIA

Raise the Rate of Saving and Investment Controlling Population Growth Balanced Growth Developing Means of Transport and Communication Providing Opportunities for Technical Education Importing Technology Remove Illiteracy and Ignorance Improvement in Education and Health facilities Development of Banking Full use of Natural Resources

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OCCUPATIONAL STRUCTURE
Occupational structure refers to the distribution of working force into various sectors of economic activity.

The number and the proportion of workers engaged in these various sectors of an economy make up the occupational structure of that country.
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RELATIONSHIP B/W ECO. DEV. & OCC. STRUCTURE

As a country develops there is a shift of workers from the primary sector to the secondary and the tertiary sector. Thus absolute number of people engaged in primary sector declines, while in tertiary sector rises. Increase in manufacturing employment absorbs a major part of the population released from agriculture. Within manufacturing, there is expected shift from household activities to non-household activities as the latter uses better technology. There is an increase in the percentage of population dependent on services.

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CHANGES IN THE OCCUPATIONAL STRUCTURE IN INDIA

SECTOR Primary Sector Secondary Sector 1951 72.1 10.7 1971 72.1 11.2 1991 66.8 12.7 2001-02 2004-05 2007-08 60.4 15.8 58.4 18.2 55.9 18.7

Tertiary Sector
Total

17.2
100

16.7
100

20.5
100

23.8
100

23.4
100

25.4
100

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ANALYSIS FROM THE TABLE:

The rate of structural change appears to be very slow. The share of primary sector in the total workforce has declined from 72.1% (1951) to 55.8% (2007-08). This reflects the underdeveloped nature of India since there is excessive dependence on agriculture. The share of secondary sector has increased from 10.7% (1951) to 18.7%(2007-08). The share of tertiary sector has increased from 17.2% (1951) to 25.4% (2007-08).

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It shows till 1971, the occupational structure did not change at all. And over the last three decades, some definite changes have taken place. The process of modernization is underway. But the pace of modernization is so slow that it does not leave a mark on the occupational structure. Area-wise distribution:

AREA Rural Urban

Primary 77% 10%

Secondary 11% 31%

Tertiary 12% 59%

In urban areas, tertiary sector is the main source of livelihood for majority of workforce.
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