FEATURES OF INDIAN ECONOMY

• Low per Capita real income:

The real income or revenue of any country means the purchasing power or the buying force of the
entire country as one unit in a given fiscal year. And the per capita real income is the purchasing
power of any individual in the country on average for the given country in the given fiscal year. The
nations which are developing tend to have lower per capita real income than the developed nations.
The Indian economy is also characterised by low per capita real income.

• Higher population growth rate:

The population of India is currently second highest in the whole world after China. India’s population
is around 1.3 billion. The large population means the available resources would have to be shared
among a large number of people, and hence each person will have fewer resources.

The growth rate of the population is ever increasing. Hence, the available employment opportunities
are not enough for the entire population. This means a great portion of the population is left
unemployed, and that’s why a lot of the Indian population is below the poverty line.

This also results in low per capita income. Hence, the increasing growth rate of the population has an
adverse effect on the Indian population.

• Dependency on the primary sector

When new job opportunities are not available to the people in developing countries like India,
people have to turn to primary sectors for income. These sectors include the occupations that people
have been doing for centuries like agriculture, cattle breeding, etc.

These sectors do not earn them as much money as other sectors in developed countries. Hence, the
Indian economy is weakened due to its dependency on the primary sectors.

• Dependence on Agriculture

Majority of India’s working population depend on agricultural activities to pursue their livelihood. In
2011 about 58 percent of India’s working population was engaged in agriculture. In spite of this, the
contribution of agriculture to India’s gross domestic product is a little over 17 percent.A major
concern of agriculture in India is that productivity in this sector is very less. There is heavy population
pressure on land to sustain huge number. Due to population pressure on land the per capita
availability of land area is very low and not viable for extracting higher output. Two, since per capita
land availability is less, a majority of people are forced to become agricultural labour working at low
wages. Three, Indian agriculture suffers from lack of better technology and irrigation facilities. Four,
mostly people, who are not educated or not trained properly, are engaged in agriculture. So it adds
to low productivity in agriculture.

• Higher rate of capital formation or investment

At the time of independence, one of the major problem of Indian economy was deficiency in capital
stock in the form of land and building, machinery and equipment, saving etc. In order to continue the
cycle of economic activities such as production and consumption, a certain ratio of production must
go towards saving and investment. However, the required ratio was never generated in the first four
to five decades after independence. The simple reason being higher consumption of necessary items
by the population of whom most happened to be poor and lower middle income class. Collective
household saving was very less due to this. Consumption of durable items was also very less. But in
recent years things have charged. Economists have calculated that in order to support the growing
population, India requires 14 percent of its GDP to be invested. It is encouraging to note that the
saving rate of India for the year 2011 stands at 31.7 percent. The ratio of gross capital formation was
36.6 percent. This is possible because people are now able to save in banks, consume durable goods
and there has been large scale investment taking place on public utilities and infrastructure.

• Poverty and inequality

As per reports of government of India, in 2011-12 about 269.3 million people in India were poor. This
was about 22 percent of India’s population. A person is termed poor if he/she is not able to consume
the required amount of food to get a minimum calorie value of 2400 in rural area and 2100 in urban
area. For this the person must earn the required amount of money as well to buy the food items.

The government has also estimated that the required amount of money is 816 in rural area and `
1000 in urban area per head per month. This comes to about ` 28 in rural area and ` 33 in urban area
per head per day. This is called poverty line. This implies that 269.9 million people of India were not
able to earn such little amount in 2011-12. In 2018, almost 8% of the world’s workers and their
families lived on less than US$1.90 per person per day (international poverty line).

Poverty goes with inequality in income and wealth distribution. Very few in India posses materials
and wealth while majority have control over no or very little wealth in terms of land holding, house,
fixed deposits, shares of companies, savings etc.

Only top 5 percent of households control about 38 percent of total wealth in India while the bottom
60 percent of household has control over only 13 percent of the wealth. This indicates concentration
of economic power in a very few hand.

Another issue linked to poverty is the problem of unemployment. One of the most important
reasons of poverty in India is that there is lack of job opportunities for all the persons who are in the
labour force of the country.

Labour force comprises of the adult persons who are willing to work. If adequate number of jobs are
not created every year, the problem of unemployment will grow.

In India every year large number of people are added to the labour force due to increase in
population, increase in number of educated people, lack of expansion of industrial and service sector
at the required speed etc.

• Planned economy

India is a planned economy. Its development process has been continuing through five year plan
since the first plan period during 1951-56. The advantage of planning is very well known. Through
planning the country sets its priorities first and provides the financial estimates to achieve the same.
Accordingly efforts are made to mobilise resources from various sources at least cost. India has
already completed eleven five year plan periods and the twelfth plan is in progress. After every plan
a review is made analysing the achievements and short falls.

Accordingly, things are rectified in the next plan. Today India is a growing economy and recognised
every where as a future economic power. The per capita income of India is growing at a higher rate
than before. India is seen as a big market for various products. All these are possible due to planning
in India.

• Agro-Based Economy:

The Indian economy is absolutely agro-based economy. Close around 14.2 % of Indian GDP is
contributed by farming and unified areas, while 53% of the total populace of the nation relies on the
horticulture sector.

• Imperfect Market:

Indian markets are defective or imperfect in nature as it falls short in the absence of portability,
mobility, or movement, starting with one spot then onto the next, which gets the ideal use of assets.
Thus, fluctuations in prices occur.

• Obsolete Technology:

Indian creation of work is labour-intensive in nature. There is an absence of innovations and modern
machinery.

• Backward Society:

Indian social orders are caught in the scourge of communalism, male-dominated society, odd
notions, caste system framework, and so forth. The above factors are the significant limitation of the
development of the Indian economy.

PROBLEMS OF INDIAN ECONOMY

• Low per capita income

o Usually, developing economies have a low per-capita income. The per capita income
in India in 2014 was $1,560. In the same year, the per-capita Gross National
Income(GNI) of USA was 35 times that of India and that of China was 5 times higher
than India.

o Further, apart from the low per-capita income, India also has a problem of
unequal distribution of income. This makes the problem of poverty a critical one and
a big obstacle in the economic progress of the country. Therefore, low per-capita
income is one of the primary economic issues in India,

• Huge dependence of population on agriculture

o Another aspect that reflects the backwardness of the Indian economyis the
distribution of occupations in the country. The Indian agriculture sector has managed
to live up to the demands of the fast-increasing population of the country.
 o According to the World Bank, in 2014, nearly 47 percent of the working population in
India was engaged in agriculture. Unfortunately, it contributed merely 17 percent to
the national income implying a low productivity per person in the sector. The
expansion of industries failed to attract enough manpower either.

• Heavy population pressure

o Another factor which contributes to the economic issues in India is population.

Today, India is the second most-populated country in the world, the first being China.

o We have a high-level of birth rates and a falling level of death rates. In order to
maintain a growing population, the administration needs to take care of the basic
requirements of food, clothing, shelter, medicine, schooling, etc. Hence, there is an
increased economic burden on the country.

• The existence of chronic unemployment and under-employment

o The huge unemployed working population is another aspect which contributes to

the economic issues in India. There is an abundance of labor in our country which
makes it difficult to provide gainful employment to the entire population.

o Also, the deficiency of capital has led to the inadequate growth of the secondary and
tertiary occupations. This has further contributed to chronic unemployment and
under-employment in India.

o With nearly half of the working population engaged in agriculture, the marginal
product of an agricultural laborer has become negligible. The problem of the
increasing number of educated-unemployed has added to the woes of the country
too.

• Slow improvement in Rate of Capital Formation

o India always had a deficiency of capital. However, in recent years, India has
experienced a slow but steady improvement in capital formation. We experienced a
population growth of 1.6 percent during 2000-05 and needed to invest around 6.4
percent to offset the additional burden due to the increased population.

o Therefore, India requires a gross capital formation of around 14 percent to offset

depreciation and maintain the same level of living. The only way to improve the
standard of living is to increase the rate of gross capital formation.

• Inequality in wealth distribution

o According to Oxfam’s ‘An economy for the 99 percent’ report, 2017, the gap between
the rich and the poor in the world is huge. In the world, eight men own the same
wealth as the 3.6 billion people who form the poorest half of humanity.
 o In India, merely 1 percent of the population has 58 percent of the total Indian
wealth. Also, 57 billionaires have the same amount of wealth as the bottom 70
percent of India. Inequal distribution of wealth is certainly one of the major
economic issues in India.

• Poor Quality of Human Capital

o In the broader sense of the term, capital formation includes the use of any resource
that enhances the capacity of production.

o Therefore, the knowledge and training of the population is a form of capital. Hence,
the expenditure on education, skill-training, research, and improvement in health
are a part of human capital.

o To give you a perspective, the United Nations Development Program (UNDP), ranks
countries based on the Human Development Index (HDI). This is based on the life
expectancy, education, and per-capita income. In this index, India ranked 130 out of
188 countries in 2014.

• Low level of technology

o New technologies are being developed every day. However, they are expensive and
require people with a considerable amount of skill to apply them in production.

o Any new technology requires capital and trained and skilled personnel. Therefore,
the deficiency of human capital and the absence of skilled labor are major hurdles in
spreading technology in the economy.

o Another aspect that adds to the economic issues in India is that poor farmers cannot
even buy essential things like improved seeds, fertilizers, and machines like tractors,
investors, etc. Further, most enterprises in India are micro or small. Hence, they
cannot afford modern and more productive technologies.

• Lack of access to basic amenities

o In 2011, according to the Censusof India, nearly 7 percent of India’s population lives
in rural and slum areas. Also, only 46.6 percent of households in India have access to
drinking water within their premises. Also, only 46.9 percent of households have
toilet facilities within the household premises.

o This leads to the low efficiency of Indian workers. Also, dedicated and skilled
healthcare personnel are required for the efficient and effective delivery of health
services. However, ensuring that such professionals are available in a country like
India is a huge challenge.

• Demographic characteristics
 o According to the 2011 Census, India had a population density of 382 per square
kilometer as against the world population density of 41 per square kilometer.

o Further, 29.5 percent was in the age group of 0-14 years, 62.5 percent in the working
age group of 15-59 years, and around 8 percent in the age group of 60 years and
above. This proves that the dependency burden of our population is very high.

• Under-utilisation of natural resources

o India is rich in natural resources like land, water, minerals, and power resources.
However, due to problems like inaccessible regions, primitive technologies, and a
shortage of capital, these resources are largely under-utilized. This contributes to the
economic issues in India.

• Lack of infrastructure

o The lack of infrastructural facilities is a serious problem affecting the Indian

economy. These include transportation, communication, electricity generation, and
distribution, banking and credit facilities, health and educational institutions, etc.
Therefore, the potential of different regions of the country remains under-utilized.

Planning commission v/s NITI Aayog

What was the Planning Commission ?

The Planning Commission was founded in 1950 by the Indian government to manage the
country’s economic and social growth, primarily via the preparation of five-year plans. The
commission’s initial objective was to improve the standard of life of ordinary Indians by more
effectively utilising the country’s material and human resources, increasing productivity, and
providing opportunities for all. It is now in charge of reviewing the country’s resources on a
regular basis, establishing five-year plans and strategies for executing them, monitoring the
plans’ implementation, and suggesting policy changes as needed. In 1951, the country’s first
five-year plan was implemented.

The commission is led by India’s prime minister and consists of many full-time members as
well as a deputy chairman. A senior officer leads each of the commission’s several
departments, which relate to various areas of the national economy and society. Education,
health, infrastructure, science, financial resources, industry, social welfare, rural
development, and water resources are some of the divisions.

What is NITI Aayog ?

The National Institution for Transforming India, or NITI Aayog, is an Indian government
policy think tank that gives feedback on the government’s many programmes and policies.
 The NITI Aayog provides appropriate advice to the federal government, state governments,
and union territories.

The Honourable Prime Minister of India and the Chief Ministers of all states and Union
territory, as well as the legislatures and Lt. Governors of other Union Territories, chair this
institution, which was established in 2015 by a resolution of the Union cabinet.

The NITI Aayog is a key player in developing plans for the Indian government’s long-term
policies and programmes. The planning commission, which was established in 1950, was
succeeded by this organisation. The Indian government wanted to provide a single platform
for all states to come together and act in the national interest while also better addressing
the needs of the people by taking this move. NITI Aayog is a ground-breaking organisation
that promotes cooperative federalism.

DIFFERENCE BETWEEN NITI AAYOG AND PLANNING COMMISSION

NITI Aayog Planning Commission

The NITI Aayog does not have the ability or mission to impose The Planning Commission had the ability to
policies on states. The National Institution for Transforming India impose policies on governments as well as
(NITI Aayog) is a think tank and advisory body. approve projects.
The Planning Commission had the ability to
provide financing for a number of national and
The NITI Aayog has not been given the power to distribute cash. The
state-level programmes and projects to state
Finance Ministry is in charge.
governments and various central government
departments.
State governments had nothing to do with the
process other than attend meetings. The only
The state governments are more involved in the NITI Aayog.
body in which the state government had a say
was the National Development Council.
Part-time members of the NITI Aayog are appointed according to the The charter of the Planning Commission did not
needs. allow for the nomination of part-time members.
The National Development Council was made
up of Lieutenant Governors and State Chief
The NITI Aayog Governing Council is made up of Lieutenant
Ministers. The National Development
Governors of Union Territories and State Chief Ministers.
Commission demanded a report from the
Planning Commission.
The CEO of NITI Aayog is appointed by the Prime Minister. Chief
The Planning Commission’s secretaries were
Executive Officer is the title given to the person in charge of a
appointed in accordance with regular procedure.
company.
The NITI Aayog board of directors may have fewer full-time members The former Planning Commission had eight full-
than the Planning Commission. time members.
Within the NITI Aayog organisation structure, new positions such as The Planning Commission’s organisational
CEO and Vice-Chairperson have been created. The CEO’s role is structure consisted of full-time members, a
similar to that of a secretary. Four Cabinet members would serve as ex- member secretary, and a Deputy Chairperson.
officio members. The NITI Aayog is made up of two part-time
members and five full-time members.
The Planning Commission developed policies
The ultimate policy would bear fruit at NITI Aayog following adequate
first, and subsequently, state governments were
consultations with state governments throughout the policy formation
consulted on funding allocations for programs
stage. It follows a bottom-up approach.
and projects. It follows a top-down approach.

Difference Between NITI Aayog and Planning Commission

Conclusion
Despite the many changes between the NITI Aayog and the former Planning Commission,
their goals and objectives were identical. Both organisations worked toward national
development and developed strategies for India’s growth and development. As a result,
these organisations must be given additional authority to establish economic growth models
that meet the country’s socio economic demands

EVALUATION OF FIVE YEAR PLAN

What is the History of Five Year Plans?
▪ The Idea of Planning as a process of rebuilding the
economy gained prominence in the 1940s-50s.
▪ Various Industrialists came together in 1944 and drafted a joint
proposal for setting up a planned economy in India. It is famously
known as the Bombay Plan.
▪ Planning for development was seen as a crucial choice for the
country, following Independence.
▪ Joseph Stalin was the first person to implement the Five-Year
Plan in the Soviet Union, in the year 1928.
▪ India launched a series of Five-Year Plans after independence to
build its economy and attain development.
What is the Concept of FYPs?
▪ The idea of five-year plans is simple- The Government of India
prepares a document with all its income and expenditure for five
years.
▪ The budget of the central government and all the state
governments is divided into two parts: non-plan budget and plan
budget.
▪ The non-plan budget is spent on routine items yearly. The planned
budget is spent on a five-year basis as per the priorities fixed by
the plan.
▪ The model of the Indian Economy was premised on the concept of
planning based on five-year plans from 1951-2017.
▪ The Five Year Plans were formulated, implemented and regulated
by a body known as the Planning Commission.
▪ The Planning Commission was replaced by a think tank called NITI
AAYOG in 2015.
o The Niti Aayog has come out with three documents — 3-year
action agenda, 7-year medium-term strategy paper and 15-
year vision document.

Five Highlights
Year
Plan

▪ The First Five Year Plan laid the thrust of

economic development in India.
▪ It was presented by the first Indian Prime
Minister, Jawaharlal Nehru to
the Parliament of India.
▪ K.N Raj, a young economist, argued that
First India should "hasten slowly" for the first two
Five- decades.
Year
Plan ▪ It mainly addressed the agrarian sector,
(1951-56) including investment in dams and
irrigation. Ex- Huge allocations were made
for Bhakhra Nangal Dam.
▪ It was based on the Harrod Domar
Model and emphasised increasing savings.
▪ By the end of 1956, five Indian Institutes of
Technology were established.
 ▪ The target growth rate was 2.1% and the
achieved growth rate was 3.6%.

▪ The Second Five year Plan stressed rapid

industrialisation and the public sector.
▪ It was drafted and planned under the
Second leadership of P.C Mahalanobis.
Five
▪ It emphasised quick structural transformation.
Year
Plan ▪ The government imposed tariffs on imports to
(1956-61) protect domestic industries under this plan.
▪ The target growth rate was 4.5% and the
actual growth rate was slightly less than
expected, 4.27%.

▪ The focus was on agriculture and

improvement in the production of wheat.
▪ States were entrusted with additional
development responsibilities. Ex- States were
made responsible for secondary and higher
education.
Third ▪ Panchayat elections were introduced to
Five bring democracy to the grassroots level.
Year
Plan ▪ The target growth rate was 5.6% and the
(1961-66) actual growth rate only achieved 2.4%
▪ This indicated a miserable failure of the Third
Plan, and the government had to
declare "Plan Holidays" (1966-67, 1967-68,
and 1968-69). The Sino-Indian War and the
Indo-Pak War, which caused the Third Five
Year Plan to fail, were the primary causes of
the plan holidays.
 ▪ It was introduced under the Prime
Ministership of Indira Gandhi and attempted
to correct the previous failures.
▪ Based on Gadgil Formula, a great deal of
emphasis was laid on growth with stability
Fourth and progress towards self-reliance.
Five-
Year ▪ The government nationalised 14 major
Plan: Indian Banks and the Green
(1969-74) Revolution boosted agriculture.
▪ The Drought Prone Area Programme was
also launched.
▪ The target growth rate was 5.6%, but the
actual growth rate was 3.3%.

▪ It laid stress on increasing employment and

poverty alleviation (garibi hatao).
▪ In 1975, the Electricity Supply Act was
amended, enabling the central government to
enter into power generation and transmission.

Fifth ▪ The Indian National Highway System was

Five- introduced.
Year ▪ The Minimum Needs
Plan Programme introduced in the first year of this
(1974-78) plan, aimed to provide basic minimum needs.
MNP was prepared by D.P. Dhar.
▪ The target growth rate was 4.4% and the
actual growth rate turned out to be 4.8%
▪ In 1978, the newly elected Morarji Desai
government rejected this plan.

Rolling Plan (1978-80)

This was a period of instability. The Janata Party government
rejected the fifth five-year Plan and introduced a new Sixth Five-
Year Plan. This, in turn, was rejected by the Indian National
Congress in 1980 upon Indira Gandhi's re-election.
A rolling plan is one in which the effectiveness of the plan is
evaluated annually and a new plan is created the following year
based on this evaluation. As a result, throughout this plan, both
the allocation and the targets are updated.

▪ It underlined the beginning of economic

liberation by eliminating price controls.
▪ It was seen as the end of Nehruvian
Socialism.
Sixth ▪ To prevent overpopulation, family
Five planning was introduced.
Year
Plan ▪ On the recommendation of the Shivaraman
(1980-85) Committee, the National Bank for
Agriculture and Rural Development was
established.
▪ The target growth rate was 5.2% and the
actual growth rate was 5.7%, implying that it
was a success.

▪ This plan was led by the Prime Ministership of

Rajiv Gandhi.
▪ It laid stress on improving
Industrial productivity levels through the
Seventh use of technology.
Five
Year ▪ Other objectives included increasing
Plan economic productivity, increasing the
(1985-90) production of food grains and generating
employment by providing Social Justice.
▪ The outcome of the Sixth Five-Year Plan
provided a robust base for the success of the
seventh five-year plan.
 ▪ It emphasised anti-poverty programmes, the
use of modern technology, and the need to
make India an independent economy.
▪ It focused on attaining prerequisites for self-
sustained growth by 2000.
▪ The target growth rate was 5.0%. However,
the actual growth rate grew to reach 6.01%

Annual Plans (1990-92)

The Eight Five Year Plan was not introduced in 1990 and the
following years 1990-91 and 1991-92 were treated as Annual
Plans. This was largely because of the economic instability. India
faced a crisis of foreign exchange reserves during this time.
Liberalisation, Privatisation, Globalisation (LPG) was introduced
in India to grapple with the problem of the economy under prime
minister P.V Narasimha Rao.

▪ The Eighth Plan promoted

the modernisation of Industries.
▪ India became a member of the World Trade
Organisation on 1 January 1995.
▪ The goals were to control population growth,
Eighth
reduce poverty, generate employment,
Five
strengthen the development of infrastructure,
Year
manage tourism, focus on human resource
Plan
development etc.
(1992-97)
▪ It also laid emphasis on involving the
Panchayats and Nagar Palikas through
decentralisation.
▪ The target growth rate was 5.6% but the
actual growth rate was an incredible 6.8%.
 ▪ It marked India's fifty years since
Independence and Atal Bihari Vajpayee led
the prime ministership.
▪ It offered support for social spheres to
achieve complete elimination of poverty and
witnessed the joint efforts of public and
private sectors in guaranteeing economic
development.
Ninth
Five ▪ The focus was also to balance the
Year relationship between rapid growth and the
Plan quality of life for the people.
(1997- ▪ The objectives, further included, empowering
2002) socially disadvantaged classes, developing
self-reliance and primary education for all
children in the country.
▪ Strategies included enhancing the high rate of
export to gain self-reliance, efficient use of
scarce resources for rapid growth etc.
▪ The target growth rate was estimated at 7.1%
but its actual growth rate fell shorter to 6.8%

▪ The features of this plan were to promote

inclusive growth and equitable development.
▪ It intended for an 8% GDP growth per year.
▪ It aimed at reducing the poverty by half and
Tenth
creating employment for 80million people.
Five
Further, it aimed to reduce regional
Year
inequalities.
Plan
(2002-07) ▪ It also emphasised reducing the gender gaps
in the field of education and wage rates by
2007.
▪ The target growth rate was 8.1% while the
actual growth was 7.6%.
 ▪ The Eleventh Plan was significant in its aim to
increase enrolment in higher education and
focused on distant education as well as IT
institutes. Ex: The Right to Education Act was
introduced in 2009, and came into effect in
2010, making education free and compulsory
for children aged between 6-14 years.
Eleventh
▪ Its main theme was rapid and more
Five
inclusive growth.
Year
Plan ▪ It is aimed at environmental sustainability and
(2007- reduction in gender inequality.
2012)
▪ C.Rangarajan prepared the Eleventh Five
Year Plan.
▪ The focus was also laid on providing clean
drinking water for all by 2009.
▪ The target rate was 9% and the actual growth
rate was 8%.

▪ The last Five Year Plan had "Faster, More

Inclusive and Sustainable Growth" as its
theme.
▪ The plan aimed at strengthening
infrastructure projects, and providing
electricity supply in all villages.
Twelfth
Five ▪ It also aimed at removing the gender and
Year social gap in admissions at school and
Plan improved access to higher education.
(2012-17)
▪ Further, it aspired to enhance the green cover
by 1 million hectares each year and to create
new opportunities in the non-farming sector.
▪ The target growth rate was 9% but in 2012,
National Development Council approved a
growth rate of 8% for this twelfth plan.