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Indian Economy Introduction – Economy Study Material & Notes

India is a developing country and our economy is a mixed economy where the public sector co-exists with the private

sector. For an overview of Indian Economy, we should first go through the strengths of Indian economy. India is

likely to be the third largest economy with a GD si!e of "#$ trillion by %&'&.(he economy of India is currently the

world)s fourth largest in terms of real GD *purchasing power parity+ after the , /hina and 0apan and the second

fastest growing ma1or economy in the world after /hina.

Indian economy growth rate is estimated to be around seven to eight percent by year %&#$-#2.

3et)s look at some facts from history regarding India as an 4conomy. Dadabhai 5aoro1i is known as the Father of 

Indian olitics and 4conomics, also known as the 6Grand 7ld 8an of India). Dadabhai 5aoro1i was the first to

calculate the national income of India. In his book 9overty and n-:ritish ;ule in India< he describes his theory, i.e.

the economic exploitation of India by the :ritish. =is theory is popularly called the 4conomic Drain (heory. (hats

when economy of India came into discussion as an entity, prior to that it was 1ust a scramble of princely states and

colonisers. (hats all the history there for time being.

Introduction to Indian Economy:-• 3ow per capita income.

• Ine>ualities in income distribution.

• redominance of agriculture. *8ore than %?'rd of India)s working population is engaged in agriculture. :ut in

only %@ of the working population is engaged in agriculture.+

• ;apidly growing population with #.%@ annual change.

• /hronic unemployment * person is considered employed if he ? she works for %A' days of a year for eight

hours every day.+nemployment in India is mainly structural in nature.

• 3ow rate of capital formation due to less saving rate.

• Dualistic 5ature of 4conomy *features of a modern economy, as well as traditional+.8ixed 4conomy

• Follows 3abour Intensive (echni>ues and activities.

Agriculture in Indian economy:-

Bhile Indian economy introduction is started, the ma1or focus is always on the agriculture sector. (his is becauseIndian economy is based on agriculture.$%@ of the total population of India depends on agriculture. ccording to the

%&##-%&#% survey of Indian agriculture contributes #C.#@ of the Gross Domestic roduct *GD+. It was $$.C@ in

#$&-#$#. India is the second largest sugar producer in the world *after :ra!il+. In tea production, India ranks first.

*%A@ of total production in the world+. Bheat productionE ttar radesh is the largest producer. un1ab and =aryana is

then the second and the third largest producer of wheat. ;ice productionE (he principal food grain in India is rice. Best

:engal is the largest producer. ttar radesh is the second largest producer of un1ab and is the third largest producer 

of rice.

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Sectors of Indian Economy

#. Primary SectorE Bhen the economic activity depends mainly on exploitation of natural resources then that

activity comes under the primary sector. griculture and agriculture related activities are the primary sectors of 

economy.

%. Secondary Sector: Bhen the main activity involves manufacturing then it is the secondary sector. ll industrial

 production where physical goods are produced come under the secondary sector.

'. ertiary Sector: Bhen the activity involves providing intangible goods like services then this is part of the

tertiary sector. Financial services, management consultancy, telephony and I( are examples of service sector.

(hese trivia about role of agriculture in Indian 4conomy is from 4conomic urvey %&#'-#C, so the data given below is

latest from government sources and hence, relevant. Be have compiled it for benefit of fellow aspirants. (he share of 

agriculture in GD has been constantly declining over the years. (his was highlighted yet again in this years.

4conomic urvey %&#'-#C, In eight years from %&&& to %&& it has declined 2.C percent. ince agricultural market

 provides the backward linkage to gro-based industries, it has to be viewed holistically as a seamless farm-to-fork 

value chain, comprising farming, wholesaling, warehousing, logistics, processing, and retailing including exports.

State of Agriculture in Economy

• bout 2& @ of the total foodgrains and oilseeds production occurs in the kharif season.

• 0ust about '$@ of arable area being irrigated, Indian agriculture is still largely dependent on rainfall.

• (he south-west monsoon *from 0une to eptember+ accounts for nearly A$ @ of total annual rainfall in India.

• =orticulture production is estimated at %2$ million tonnes in %&#' and for the first time has exceeded the

 production of foodgrains and oilseeds.

• n increase of C& lakh in overall area coverage under foodgrains in %&#' as compared to previous year. nd record

foodgrains production of %2C.C million tonnes is estimated in %&#'-#C. (his increase is due toE + expansion in

area, :+ increase in 8s of select foodcrops gave incentive to cultivation.

!oncerns regarding Agriculture:

• roductivity levels in Indian agriculture are still much lower than the global standards. roductivity levels of riceand wheat have not risen significantly after the #&s. (hough cotton yields have taken tremendous leap over the

last decade, due to :t cotton.

• oil degradation because of declining efficiency of fertili!er use.

• larming reduction in the water table, especially in states of un1ab and =aryana due to their inefficient

cropping pattern.

• (he nutrient based subsidy *5:+ policy, does not have 9urea< under its purview which is used more than the

others, so subsidy benefit is not reaching right beneficiary.

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• (he predominance of marginal and fragmented farms in India)s agriculture, with limited capital availability,

hampers progress of farm mechani!ation.

• Domestic and international marketing of agricultural commodities needs immediate attention but past interventions

of government for building marketing set up have in fact created more barriers to trade. o, there is a need to

reduce these market distortions.

 Steps to be taken, as suggested by the Economic Survey document:

• ;ecommendation of the (ask Force for Direct (ransfer of ubsidy *headed by 5andan 5ilekani+ to shift to direct 

transfer of fertilizer subsidy to farmers in a phased manner needs to be considered.

• (he Crop Diversification Scheme has been introduced in the un1ab and =aryana region to encourage farmers to

choose crop alternatives and is also expected to promote technological innovations.

• (here is need to facilitate a National Common Market  for agricultural commodities with uniform taxes in

the domestic market, and to foster a long-term stable trade policy for agricultural products.

•  5eed to expand the decentrali!ed system of procurement for the D from present ## states and (s to all the

states. (his would help in- + saving transport costs, :+ reduce transit losses and other leakages, /+ increase food

availability, D+ reduce food prices in the open market and 4+ ultimately rein in food subsidy.

Food Ination:

In %&#'-#C it has been a result of structural and seasonal factors with different items causing it at different times. Initially-cereals and proteins, then- vegetables esp. onions. lso, inflation increased for rotein- based items due to rising income

levels and subse>uent increase in consumption.

hree "road reasons for food inflation:

#. Bastage of food in the supply chain due to inefficiencies in distribution channels of government.

%. 8/ cts of state governments hamper creation of competitive conditions in distribution of commodities. 5o

competition leads to ineffectiveness. (his has prevented creation of a national market for agricultural commodities.

'. 8ultiple layers of intermediaries in distribution of food articles have pushed up prices for consumers.

Solutions suggested in survey:

#. Focus should be on reducing food wastage in the supply chain of distribution channels.

%. Increased investment in marketing infrastructure, including modern warehouses, cold storages, reefer vans

*refrigerated vans+, scientific packaging and handling to strengthen distribution channels.

'. tate governments will have to remove restrictive provisions in the 8/ ct and promote alternative trading

options for farmers.

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Other Classications of Economy:-

#. #rgani$ed Sector: (he sector which carries out all activity through a system and follows the law of the land is called

organi!ed sector. 8oreover, labour rights are given due respect and wages are as per the norms of the country and those

of the industry. 3abour working organi!ed sector get the benefit of social security net as framed by the Government.

/ertain benefits like provident fund, leave entitlement, medical benefits and insurance are provided to workers in the

organi!ed sector. (hese security provisions are necessary to provide source of sustenance in case of disability or death of 

the main breadwinner of the family without which the dependents will face a bleak future.

%. %norgani$ed Sector: (he sectors which evade most of the laws and don)t follow the system come under unorgani!ed

sector. mall shopkeepers, some small scale manufacturing units keep all their attention on profit making and ignore

their workers basic rights. Borkers don)t get ade>uate salary and other benefits like leave, health benefits and insurance

are beyond the imagination of people working in unorgani!ed sectors.

'. Pu"lic Sector: /ompanies which are run and financed by the Government comprises the public sector.

fter independence India was a very poor country. India needed huge amount of money to set up

manufacturing plants for basic items like iron and steel, aluminium, fertili!ers and cements. dditional

infrastructure like roads, railways, ports and airports also re>uire huge investment. In those days Indianentrepreneur was not cash rich so government had to start creating big public sector enterprises like I3

75G/.

C. Private Sector: /ompanies which are run and financed by private people comprise the private sector. /ompanies like

=ero =onda, (ata are from private sectors.