UNIT 1

CHARACTERISTICS OF INDIAN ECONOMY

In year 2010, the World Development Report published by the World Bank, classified the various countries on the basis of Gross National Income (GNI) per capita.

GNI can be equivalent to GNP (Gross National Product) used earlier by World Bank.

In year 2009, India had the population of around 1,177 million with per capita income of around $1,177 was ranked among the poorest economies of the world. Despite the fact that India had a share of 17.4% in world population, it accounts for only 2.3% of world GNI on exchange rate basis.

On the basis of PPP (Purchasing Power Parity), India had a per capita GNI of around $ 3768 was categorized in the group of lower middle income economies of the world. During 2000 and 2009, it recorded acceleration in its growth rate of GDP to an average of 8%. Optimistically speaking, India is expected to be categorized in the group of upper middle income economies in coming years.

China, one of the most promising economies of the world, has already entered the upper middle income group.

Characteristics of Indian Economy

According to the latest report published by World Bank, Indian Economy has been ranked fourth largest economy of the world. Nevertheless, the Indian Economy is still lagging behind in many domains and aspects. In year 2011-12, around 58.12% of the total Indian general population was engaged in agriculture and allied activities. In year 2008, the contribution of agriculture to the national income was around 17.5%. This indicates to the extreme backwardness of the Indian Economy. On the other hand, around 1% of the UK working population and 4% of the USA working population is engaged in agriculture. Likewise, around 7% of France working population and 6% of Australia working population is engaged in agriculture. It concludes the fact in countries which are backward and are less developed have a high amount of working population which are engaged in agriculture.

According to Indian Economists, the basic economic structure of India has become powerful after Independence. Quantitatively speaking, there have been phenomenal developments done in India with annual growth recorded to be 8%, during 2008-09.

The various aspect and main characteristics of Indian Economy are as follows:

1. Agrarian Economy: After 68 years of Independence, around 58.2% of the work force in India relies on agriculture. In 2011-12, the contribution of agriculture to the Gross Domestic Product (GDP) was recorded to be 14.1%. 
2. Mixed Economy: Indian Economy is considered to be mixed economy. It implies the fact that it is the unique blend of public and private sector. In its entire plan period, the Indian Government has invested 45% capital in public sector. Nonetheless, the major sources and resources of the production, which accounts to approximately 80%, are in the hands of the private sector. After going through liberalization, the Indian Economy is marching ahead as market economy or capitalist economy.
3. Developing Economy: The Indian Economy is a developing economy can be explained through following facts and they are as follows:

1. As far as international standards are concerned, the National Income of India is very low. In year 2009, the per capita income ($1180) is considered to be extremely low as compared to other developed countries.
2. Currently speaking, India is reported to have 260 million people or around 26.1% of its population living below Poverty Line.
3. In India, the unemployment level is very high. It is primarily structural in nature because the productive capacity is inadequate to create adequate number of jobs. In rural areas, there is acute problem of disguised unemployment. A person who works for 273 days of a year for eight hours every day is considered to be employed.
4. In India, the saving is low as there is low national income and high consumption expenditure. The low saving results paves way to the shortage of capital formation, as capital is considered to be significant factor of production.  In year 2008, the Gross Domestic Saving of India had reached a level of 38.0% and Capital Formation was recorded to be 39.7%.
5. The population of India has increased by 21.34%, during 1991-2001, and this implies that high growth of population of around 1.7 crore of new persons being added to Indian population every year. After China, India is the second largest populated country of the world. According to 2001 census, the total Indian population recorded was around 102.7 crore, which is about 16.7% of the world total population. As compared to 16.7% of world population, India holds only 2.45% of the total land area of the world. 
6. As far as modern and advanced technology is concerned, India lags behind in large industrialization. It is because of this factor the pace of the development in the economy of India is very low.

Important Facts relating to the Characteristics of Indian Economy

1. Agriculture and the allied sectors are considered to be the primary sector of the Indian Economy. In 2008-09, the contribution of the agriculture sector to GDP was 18.9%.
2. The sectors like manufacturing, industry, electricity etc. are considered to be secondary sector of the Indian Economy. Their contribution to GDP is around 23.8%.
3. The sectors like business, transport, services and communication are considered to be tertiary sector of the Indian Economy. Their contribution to GDP is around 57.3% during 2008-09.
4. The public sector contribution in the gross production is less than 20%.
5. Per Capita Income is the best indicator of the economic development of any country.
6. During 2000-01 and 2004-05, the growth rate accelerated to around 6.4% and per capita NNP growth accelerated to around 6.4% and was 4.47% per annum at 1999-00 prices. During 2004-05 and 2009-10, NNP growth further accelerated to 8.4% and per capita income accelerated to around 6.85%, at 2004-05 prices.

The factors which are important in the Economic Development of a developing country are as follows:-

1. Natural Resources
2. Capital Gain
3. Skilled Labour Force
4. Surplus Sale of Agriculture
5. Justified Social Organization
6. Political Freedom
7. Freedom from Corruption
8. Technological Knowledge and General Education

MCQS ON CHAPTER 1 CHARACTERISTICS OF INDIAN ECONOMY

1.       In India planned economy is based on

a.       Gandhian System

b.      Socialist System

c.       Capitalist System

d.      Mixed Economy System

Ans. b

2.       Economic liberalization in India started with

a.       Substantial changes in Industrial licensing policy

b.      The convertibility of Indian rupee

c.       Doing away with procedural formalities for foreign direct investment

d.      Significant reduction in tax rates

Ans. a

3.       It will be true to classify India as

a.       A food deficit economy

b.      A labour surplus economy

c.       A trade surplus economy

d.      A capital surplus economy

Ans. b

4.       The Indian economy is characterized by

a.       Pre-dominance of agriculture

b.      Pre dominance of industry

c.       Low per capita income

d.      Massive unemployment

Select your answer from the code given below:

 Codes

a.       1 and 2 only   

b. 1,2 and 3 only

C, 2,3, and

4 only d. 1, 3 and 4 only

Ans. d

5.       Mixed Economy means:

a.       Where agriculture and industry are given equal importance

b.      Where globalization is transferred with heavy dose of Swadeshi in National economy

c.       Where public sector exists alongwith the private sector in national economy

d.      Where the Centre and the states is equal partner in economic planning and development

Ans. c

6. Which of the following statements about the Indian Economy is correct?

a. Indian economy is as developed as that of China

b. About 70% Indians are involved in some type of self-employment and are the owners of some or the other micro or small enterprise

c. In India single biggest employment is agriculture and allied activities

d. About 48% Indian workforce is employed in foreign countries or in organisations assisted by foreign capital

e. None of these

Ans. c

7. In economic terms, which of the following factors determine the ‘Individual’s demand’ of a product/ commodity?

a. Price of a commodity.

b. Income of the individual.

c. Utility and quality of a commodity

(1) Only a.

(2) Only b.

(3) Only c.

(4) Only a. & c.

(5) All a, b & c

Ans. 5

8. Which of the following terms is used in the field of economics?

a. Adiabatic

b. Bohr Theory

c. Plasma

d. Barter System

e. Viscosity

Ans. d

9. Who amongst the following is not a recipient of Nobel Prize in economics?

a. Peter A. Diamond

b. Dale T. Mortensen

c.AmartyaSen

d. Paul Krugman

e. Robert G. Edwards

Ans. a

10. Which of the following statements about the Indian Economy is correct?

a. Indian economy is as developed as that of China

b. About 70% Indians are involved in some type of self-employment and are the owners of some or the other micro or small enterprise

c. In India single biggest employment is agriculture and allied activities

d. About 48% Indian workforce is employed in foreign countries or in organisations assisted by foreign capital

e. None of these

Ans. c

11. In economic terms, which of the following factors determine the ‘Individual’s demand’ of a product/ commodity?

a. Price of a commodity.

b. Income of the individual.

c. Utility and quality of a commodity

(1) Only a

(2) Only b

(3) Only c

(4) Only a & c

(5) All a, b & c

Ans. 5

12. Which of the following is not a characteristic of the Indian Economy?

a. low per capita income

b. primacy of agriculture

c. balance between heavy industry and wage goods.

d. population pressure

   Ans. c

13. India has entered into Comprehensive Economic Co-operation Agreement with which of the following countries recently:

a. Singapore

b. USA

c.   Australia    

d. None of these

 Ans. a