Features of Indian Economy

The Indian economy, currently in a developing stage, is grappling with major challenges like illiteracy, unemployment, and poverty. The decreasing Gross Domestic Product (GDP) further complicates the situation. Several factors contribute to the current state of the Indian economy.

(i) Low per capita income

(ii) Heavy population pressure

(iii) Dependence of population on agriculture

(iv) Poverty and Inequality income distribution

(v) Higher level of capital formation which is a positive feature

(vi) Planned economy

Low per Capita Income

India is often recognized globally for its relatively low per capita income, a measure that indicates the average earnings of an individual in the country per year. However, it’s essential to note that this figure may not accurately represent the actual income of every citizen.
The per capita income of India for the 2012-2013 period is estimated at 39,168, which translates to approximately 3,264 per month. This statistic provides insight into the average annual earnings of an Indian citizen.
When comparing India’s per capita income to other countries, it becomes evident that India lags behind many nations. For instance, the per capita income of the United States is 15 times higher than that of India, highlighting a significant disparity. Similarly, China’s per capita income is more than three times that of India.

Heavy Population Pressure

India is the second most populous country globally, right after China. According to the 2011 census, India’s population is over 1.21 billion. Between 1990 and 2001, the population grew at a rate of 1.03 percent. The main reason for this rapid increase is the significant drop in the death rate, while the birth rate hasn’t decreased as much. The death rate is the number of people who die per thousand of the population, while the birth rate is the number of people born per thousand.
In 2010, the birth rate was 22.1 persons per thousand, and the death rate was only 7.2 persons per thousand. A lower death rate is a positive sign of development, indicating a better public health system. However, the high birth rate poses a challenge as it directly contributes to population growth.
Since 1921, India’s population has grown rapidly because the birth rate decreased slowly while the death rate dropped significantly. In 1921, the birth rate was 49, and by 2010, it had declined to 22.1. During the same period, the death rate decreased from 49 to 7.2. This rapid population growth has become a major concern for India.
The heavy population pressure has placed a significant burden on the country’s finances. The government must allocate sufficient resources to provide public services such as education, healthcare, and infrastructure to meet the needs of the growing population.

Dependence on Agriculture

A large number of hardworking individuals in India rely on farming for their livelihoods, making up about 58 percent of the working population as of 2011. Despite this, agriculture’s contribution to the country’s overall economic output is just a little over 17 percent.
One major issue plaguing Indian agriculture is its low productivity. The pressure from the growing population on the available land is immense, resulting in a very low per capita land availability. This scarcity makes it challenging to achieve higher agricultural output, and unfortunately, many end up working as agricultural laborers for low wages.
The challenges in Indian agriculture are exacerbated by the limited access to advanced technology and proper irrigation facilities. These shortcomings hinder the sector’s potential for growth and efficiency.
Another significant factor contributing to the low productivity in agriculture is the involvement of a large number of people who lack proper education and training. This further highlights the need for skill development and education to enhance agricultural practices and outcomes.

Poverty and Inequality

In 2011-12, government reports highlighted that approximately 269.3 million people in India, constituting about 22% of the population, were living below the poverty line. Being labeled as poor meant not having the means to attain a minimum calorie intake of 2400 in rural areas and 2100 in urban areas. This required earning a meager amount of ₹816 in rural areas and ₹1000 in urban areas per person per month, translating to about ₹28 in rural areas and ₹33 in urban areas per person per day.
According to estimates, a significant portion of India’s population, around 269.9 million people, couldn’t manage to earn even this modest amount in 2011-12. Fast forward to 2018, and nearly 8% of the world’s workers and their families were living on less than US$1.90 per person per day, as per the international poverty line.
The issue of poverty is closely intertwined with the unequal distribution of income and wealth in India. A small percentage of the population possesses substantial wealth, controlling significant resources like land, houses, fixed deposits, shares, and savings. Shockingly, the top 5% of households command 38% of India’s total wealth, while the bottom 60% have control over a mere 13%, indicating a stark concentration of economic power.
This economic inequality further exacerbates the problem when coupled with the challenge of unemployment. Lack of job opportunities for the country’s labor force, comprising adults willing to work, is a major contributor to poverty in India. The annual addition of a large number of people to the labor force, driven by factors such as population growth, increased education levels, and the slow expansion of the industrial and service sectors, amplifies the unemployment issue, perpetuating the cycle of poverty.

Higher rate of capital formation or investment

At the time India gained independence, a significant challenge for the economy was the lack of capital stock, including land, buildings, machinery, and savings. For economic activities like production and consumption to thrive, a certain proportion of production needs to be dedicated to saving and investment. Unfortunately, in the initial four to five decades post-independence, the necessary ratio wasn’t achieved. The main culprit was the high consumption of essential items, particularly by the predominantly poor and lower-middle-income population.
Household savings were minimal, and the consumption of durable goods was low. However, there has been a positive shift in recent years. Economists suggest that for India to sustain its growing population, it should invest 14 percent of its GDP. It’s heartening to see that, as of 2011, India’s saving rate stands at an impressive 31.7 percent, with a gross capital formation ratio of 36.6 percent. This shift is attributed to people now being able to save in banks, an increase in the consumption of durable goods, and substantial investments in public utilities and infrastructure.

Planned Economy

India’s economic journey has been guided by meticulous planning, with the initiation of five-year plans since 1951. These plans, spanning periods like 1951-56, have been instrumental in shaping the country’s development. The advantage of this structured approach is evident, allowing the nation to prioritize its goals and allocate financial resources accordingly.
The planning process involves a thorough assessment of achievements and shortcomings at the end of each plan period. This reflective analysis leads to adjustments and improvements in subsequent plans. Currently, India is navigating its way through the twelfth plan period, building on the lessons learned from the previous eleven.
One of the key benefits of this planning strategy is the strategic mobilization of resources from diverse channels, minimizing costs wherever possible. This financial prudence has contributed to India’s recognition as a growing economic power. The country’s increasing per capita income, outpacing previous rates of growth, attests to the success of this approach.
Today, India is not only seen as a significant market for various products but also as a promising future economic powerhouse. The success story of India’s planned economy underscores the importance of foresight, adaptability, and continuous improvement in achieving sustained growth and development.