Characteristics of Indian Economy

Characteristics of Indian Economy

Main characteristics and various aspects of the Indian Economy are:

Key Features and Aspects of the Indian Economy

1. Agrarian Economy

• Even after seven decades of independence, agriculture plays a vital role in India’s economy.

• 54.6% of the population is engaged in agriculture and allied activities (Census 2011), and according to' INDIA 2021, it contributes 17.8% to the country's Gross Value Added for the year 2019-20 (at current prices).

2. Mixed Economy

• The Indian economy is a unique blend of public and private sectors, i.e., a mixed economy.

• After liberalization, the Indian economy is going ahead as a capitalist economy or market economy.

3. Developing Economy

According to the press note released on 31st August 2022 by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, the estimates of GDP for the April-June quarter (Q1) of 2022-23 are:

• Real GDP: At constant (2011-12) prices in Q1 2022-23 is estimated to attain a level of Rs. 36.85 lakh crore, as against Rs. 32.46 lakh crore in Q1 2021-22, showing a growth of 13.5 % as compared to 20.1 % in Q1 2021-22.

• Nominal GDP: At current prices in Q1 2022-23, it is estimated at Rs. 64.95 lakh crore, as against Rs. 51.27 lakh crore in Q1 2021-22, showing a growth of 26.7% as compared to 32.4 % in Q1 2021-22.

Unemployment

• The level of unemployment is very high. Unemployment in India is mainly structural in nature because the productive capacity is inadequate to create a sufficient number of jobs.

• There is an acute problem of disguised unemployment in the rural areas. A person is considered employed if he/she work for 273 days of the year for eight hours every day.

Savings and Capital Formation

• Savings are low in India due to low national income and high consumption expenditure. The low savings result in a shortage of capital formation. Capital is an important factor of production.

Population

• India is the second most populated country in the world. During 2001-2011, the population increased by 17.69%.

• With this high growth rate of population, about 1.83 crore new persons are being added to the Indian population every year.

• According to the 2011 census, the total Indian population stands at a high level of 121.07 crore, which is 17.5% of the world's total population.

• To maintain 17.5% of the world population, India holds only 2.42% of the total land area of the world.

Industrialization

• India lacks large-scale industrialization based on modern and advanced technology, which fails to accelerate the pace of development in the economy.

Important Facts Relating to the Characteristics of the Indian Economy

• The primary sector of the Indian economy is agriculture and the related sectors.

• The secondary sector of the Indian Economy is related to industry, manufacturing, electricity, etc.

• The tertiary sector of the Indian economy is related to business, transport, communication, and services.

• The best indicator of the economic development of any country is per capita income.

Factors Important in the Economic Development of a Developing Country

• Natural resources

• Capital gain

• Skilled labour force

• Surplus sale of agriculture

• Justified social organisation

• Political freedom

• Freedom from corruption

• Technological knowledge and general education

Wholesale Price Index (WPI)

• Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of the early stage of transactions.

• The index basket of the WPI covers commodities falling under the three major groups, namely primary articles, fuel and power, and manufactured products.

Poverty in India

Poverty estimates are derived from household consumption data. The World Data Lab monitors global poverty using advanced statistical models.

Measuring Poverty in India

• In India, the first official rural and urban poverty lines at the national level were introduced in 1979 by the Y.K. Alagh Committee, and official poverty counts began for the first time.

• Later, in 1993, the D.T. Lakdawala Committee extended these poverty lines to states and, over time, allowed official poverty counts over time and in the states.

• In 2005, recognizing that the rural poverty line was too low, the government appointed the Tendulkar Committee to take a fresh look at the poverty lines. Reporting in 2009, the Tendulkar Committee revised upward the rural poverty line.

• Continued media criticisms led the government to appoint the Rangarajan Committee in 2012.

• Reporting in June 2014, the committee recommended raising both the rural and urban poverty lines. A decision is yet to be taken on the Rangarajan Committee recommendations.

Therefore, the Tendulkar poverty line remains the official poverty line and is the basis of the current official poverty estimates in 1993-94, 2004-05, and 2011-12.

World Bank Updated International Poverty Line

The World Bank updated the global poverty lines in September 2022. The decision was announced in May 2023, following the release in 2020 of new purchasing power parities (PPPs), the main data used to convert different currencies into a common, comparable unit and account for price differences across countries.

• The new extreme poverty line of $2.15 per person per day, which replaces the $1.90 poverty line, is based on 2017 PPPs.

• The new global poverty lines of $2.15, $3.65, and $6.85 reflect the typical national poverty lines of low-income, lower-middle-income, and upper-middle-income countries in 2017 prices. The new nowcast estimated at the US$2.15 poverty line is available since October 2022.

Multidimensional Poverty

Using the NFHS-4 (2015-16) report, in line with the global Multidimensional Poverty Index (MPI), NITI Aayog prepared the Multidimensional Poverty Index at the national level for all states and districts of India.

It will enable measuring deprivation across twelve indicators at the national, state, and district levels. In 2015-16, 25% of households were found to be multidimensionally poor in India.

Since the MPI index is based on NFHS-4 data from 2014-15, it may serve as the baseline for measuring deprivation in future studies.

[Source: MOSPI]

Below Poverty Line (BPL)

• According to the Rangarajan Committee, 30.95% of people in rural areas and 26.4% in urban areas (as compared to 25.7% and 13.7%, respectively, as per the Tendulkar Methodology) were below the poverty line in 2011-12. [Source: The IE, 4 July 2015 and ES2015-16]

• Around 22% of Indians live below the poverty line. Out of the total population living in the rural parts of the country, 25.7% are living below the poverty line, according to the BI.

• In the urban areas, 13.7% of the population is living below the poverty line. [Source: Financial Express (FE), 21st Sept, 2019]

National Multidimensional Poverty Index 2022

Key Facts

• According to the 'National Multidimensional Poverty Index: A Progress Review 2023' report recently released by NITI Aayog, a record 13.5 crore people were freed from multidimensional poverty during the period 2015-16 to 2019-21.

• According to the Report, the number of multidimensional poor in India fell from 24.85% in the year 2015-16 to 14.96% in the year 2019-21, which is a significant decline of 9.89% points.

During this period, poverty in urban areas declined from 8.65% to 5.27%, while poverty in rural areas declined fastest from 32.59% to 19.28%.

Various Committees on Poverty in India

Since India's independence, six official committees have been formed to estimate the number of people living in poverty in the country.

• Planning Commission Working Group (year 1962)

• VM Dandekar and N.Rath (1971)

• Separate Committee (year 1979)

• Lakdawala Committee (1993)

• Tendulkar Committee (2009)

• Rangarajan Committee (2014)

Poverty Rate in India

India's headline poverty rate stood between 4.5% and 5.0% in 2022-23. The latest HCES results were released after over a decade on February 24, 2024.

The study by the State Bank of India, which is based on the latest Household Consumption Expenditure Survey HCES: 2022-23, showed that rural poverty declined to 7.2% in 2022-23 from 25.7% in 2011-12.

Meanwhile, urban poverty declined to 4.6% from 13.7% during the same period.

Final Thoughts

The Indian economy stands as a unique blend of tradition and modernity, shaped by its agrarian base, growing industries, and rapidly expanding services sector. Despite significant progress, challenges like poverty, unemployment, and income inequality continue to hinder inclusive growth. At the same time, the country’s young workforce, vast natural resources, and digital transformation provide immense opportunities for future development.

With consistent efforts toward sustainable growth, poverty reduction, and technological advancement, India is steadily moving closer to becoming a global economic powerhouse.

The journey ahead requires a balance of innovation, social equity, and environmental responsibility to ensure that growth benefits every section of society.