Indian Economy

  

      Unit iv Indian Agriculture

प्रश्न पूछने के लिए कमेंट बॉक्स में लिख सकते हैं| यथा समय उत्तर मिलेगा|

Indian Economy: An economy is that structure in which various economic activities related to agriculture,  industry, banking, insurance and communications are performed. These economic activities result into production of goods and services or one hand and generate opportunities of employment and livelihood on the other hand.

Thus, every economy entails two main functions:-

1. It provides various goods and services for satisfying human wants and needs.

2. It provides avenues of employment and livelihood people. 

An economy is a social organism through which people make their living. It is constituted of all those individuals, households,  farms, factories,  banks and government which act and interact to produce and consume goods and services.

Individuals and households put their resources (land, labour,  capital and skill) to one or more of their alternative uses and make their living, firms buy factors of production and organize them in the process of production to produce goods and services and to sell then to their users to make projects.

Financial institutions, e.g., commercial banks and LIC etc. collect savings from the households and firms and provide it to their prospective users;transport companies transport goods from one place to another and so on

Structure of an economy: Economic activities, in an economy, can be classified in three sections:

(i)Primary Sector

(ii)Secondary Sector

(iii) Tertiary Sector/ Service Sector

Types of Economy:

(i)                 Underdeveloped, developing & developed economies: The term underdeveloped countries, we use it to mean countries in which per capita real income is low when compared with the per capita real income of united states of America, Canada, Australia and Western Europe.

The term developing economies signifies that through still underdeveloped the process of development has been initiated in these countries.

The U.N classification of developed and developing economies on the basis of per capita income has made following observations:

(a)    There is gross inequality of income between the rich and poor countries.

(b)   The gap in per capita income between the rich and poor countries is even widening over the years.

(c)    All the high income countries are not necessarily developed countries for instance, the oil exporting countries have high per capita incomes but they are not necessarily the developed economies.

(ii)                 The Capitalist economy: Under capitalism all farms, factories and other means of production are the property of private individuals and firms. They are free to use them with a view to make profit or not to use them, if it so suits them. The desire for profit is the sole consideration with the property owners in the use of their property.

“Capitalism is a system of economic organisation featured by the private ownership and use for the private profit of man-made and nature-made capital.”

Features: A study of capitalism reveals several outstanding features:

1.      The most important features of the capitalism is the existence of private property and system of inherence.

2.      Every consumer enjoys a freedom of choice for the selection the commodities and services that he wishes to consume.

3.      The profit motive of individuals governs business enterprises.

4.      The class-conflict is inherent in capitalist economy.

5.      It is the price-mechanism which facilitates the functioning of capitalism

6.      The main feature of capitalistic economy is the glaring inequalities of income and wealth.

7.      Capitalism works on the principles of the free trade laisseze fair system.

(iii)      Socialist Economy: Socialism implies social ownership of means of production. It implies equality of incomes and equality of opportunity for all.

In socialistic economy all economic activities are centrally planned, controlled and regulated by state. Socialism lays emphasis on work and ability and equal opportunities for all regardless of caste, class and inherited privileges. In a socialistic economy, not only there is a complete disregard for free enterprise and market mechanism but also these systems are abolished by law.

 Features: The main features of socialistic economy are as follows:

1.      The ownership and control of means of production are vested in the State so that the state may provide work for everybody.

2.      There is no private enterprise.

3.      Due to the restricted rights of private property, absence of private profit, abolition of inheritance law, the socialism is able to reduce the inequalities of distribution of income and wealth.

4.      Since all the productive resources are owned by the State, exploitation is eliminated.

5.      The state is incharge of both production and distribution.

6.      In the process of economic planning state was an absolute control.

7.      There is only a little space for competition in the socialistic economy.

(iv) Mixed Economy: The mixed economy is neither capitalism nor socialism. In this system we find the characteristics both of capitalism and socialism. The mixed economy tries to avoid the two extreme of pure capitalism and pure socialism and the evils associated with each of them. 

In the mixed economy both private and public sector operates, Some industries are owned and managed by the state and Other industries are owned and managed by the private sector.

The planning commission of India describe the mixed economy in the following way,

" In mixed  economy private and public sectors are closely related and they function as the two factors of one unit."

Characteristics:

The main features of mixed economy is are as follows:

1. In the mixed economy, both public and private sectors function together.

2. The mixed economy is the mixture of capitalism and socialism.

3. Under mixed economy, individual freedom is allowed but it is controlled and regulated      by the state.

4. Under mixed economy, the partly control planning is operated.

5. Under mixed economy competition is controlled and regulated.

6. In a mixed economy, production process is  carried on for the profit motive of economy      as a whole.

7. Under mixed economy, the right of private ownership is limited.

8. The governments in mixed economy take necessary steps for the reduction of inequality   of income and wealth and for the Social Justice.

9. Mixed economy functions through both; the price mechanism and Central authority.

Difference Between Economic Growth vs Economic Development

Economic growth is the increase in goods & Services produced by an economy or nation, considered for a specific period of time. The rise in the country’s output of goods and services is steady and constant and may be caused by an improvement in the quality of education, improvements in technology or in any way if there is a value addition in goods and services which is produced by every sector of the economy.

It can be measured as a percentage increase in real gross domestic product. Where a gross domestic product (GDP) is adjusted by inflation. GDP is the market value of final goods & services which is produced in an economy or nation.

Economic Development is the process focusing on both qualitative and quantitative growth of the economy. It measures all the aspects which include people in a country become wealthier, healthier, better educated, and have greater access to good quality housing. 

Economic Development can create more opportunities in the sectors of education, healthcare, employment and the conservation of the environment. It indicates an increase in the per capita income of every citizen. The standard of living includes various things like safe drinking water, improve sanitation systems, medical facilities, the spread of primary education to improve literacy rate, eradication of poverty, balanced transport networks, increase in employment opportunities etc.

Quality of living standard is the major indicator of economic development. Therefore, an increase in economic development is more necessary for an economy to achieve the status of a Developed Nation.

It can be measured by the Human Development Index, which considers the literacy rates & life expectancy which affect productivity and could lead to Economic Growth.

 

Factors Determining Economic Development in India

 economic development of a country depends on both economic and non-economic factors. The following are some of the economic and non-economic factors determining the pace of economic development in a country like India.

 

Economic Factors:

Economic environment is working as an important determinant of economic development of a country. Economic environment can determine the pace of economic development as well as the rate of growth of the economy. This economic environment is influenced by the economic factors like— population and manpower resources, natural resources and its utilization, capital formation and accumulation, capital output ratio, occupational structure, external resources, extent of the market, investing pattern, technological advancement, development planning, infrastructural facilities, suitable industrial relations etc.

1. Population and Manpower Resources:

Population is considered as an important determinant of economic growth. In this respect population is working both as a stimulant and hurdles to economic growth. Firstly, population provides labour and entrepreneurship as an important factor service.

Natural resources of the country can be properly exploited with manpower resources. With proper human capital formation, increasing mobility and division of labour, manpower resources can provide useful support to economic development.

2. Natural Resources and Its Utilization:

Availability of natural resources and its proper utilization are considered as an important determinant of economic development. If the countries are rich in natural resources and adopted modern technology for its utilization, then they can attain higher level of development at a quicker pace. Mere possession of natural resources cannot work as a determinant of economic development.

 

3. Capital Formation and Capital Accumulation:

Capital formation and capital accumulation are playing an important role in the process of economic development of the country. Here capital means the stock of physical reproducible factors required for production.

The increase in the volume of capital formation leads to capital accumulation. Thus it is quite important to raise the rate of capital formation so as to accumulate a large stock of machines, tools and equipment by the community for gearing up production.

4. Capital-Output Ratio:

Capital-output ratio is also considered as an important determinant of economic development in n country. By capital-output ratio we mean number of units of capital required to produce per unit of output. It also refers to productivity of capital of different sectors at a definite point of time. But the capital output ratio in a country is also determined by stage of economic development reached and the judicial mix of investment pattern. Moreover, capital-output ratio along with national savings ratio can determine the rate of growth of national income.

5. Favourable Investment Pattern:

Favourable investment pattern is an important determinant of economic development in a country. This requires proper selection of industries as per investment priorities and choice of production techniques so as to realize a low capital—output ratio and also for achieving maximum productivity.

6. Occupational Structure:

Another determinant of economic development is the occupational structure of the working population of the country. Too much dependence on agricultural sector is not an encouraging situation for economic development. Increasing pressure of working population on agriculture and other primary occupations must be shifted gradually to the secondary and tertiary or services sector through gradual development of these sectors.

7. Extent of the Market:

Extent of the market is also considered as an important determinant of economic development. Expansion of the scale of production and its diversification depend very much on the size of the market prevailing in the country.

 

8. Technological Advancement:

Technological advancement is considered as an important determinant of economic environment. By technological advancement we mean improved technical know-how and its broad-based applications.

It includes:

(a) Use of technological progress for economic gains,

(b) Application of applied sciences resulting in innovations and inventions and

(c) Utilisation of innovations on a large scale.

With the advancement of technology, capital goods become more productive. Accordingly, Prof. Samuelson rightly observed that “High Invention Nation” normally attain growth at a quicker pace than “High Investment Nation”.

There may be three forms of technological advancement, i.e.,

(a) Capital saving,

(b) Labour saving or

(c) Neutral.

The following three conditions must be satisfied for attaining technological advancement in a country:

(a) Making provision for large investments in research,

(b) Ability to realize the possibilities of using scientific inventions and innovations for commercial purposes and expansion and diversification of the market for its product.

As the underdeveloped countries like India have failed to fulfill these conditions thus their development process is neither self-sustaining nor cumulative. Thus in order to attain a higher rate of development, the under-developed countries should adopt only that type of technology which can suit their requirements.

9. Development Planning:

In recent years, economic planning has been playing an important role in accelerating the pace of economic development in different countries. Economic development is considered as an important strategy for building various social and economic overhead or infra- structural facilities along with the development of both agricultural, industrial and services sectors in a balanced manner.

Planning is also essential for mobilization of resources, capital formation and also to raise the volume of investment required for accelerating the pace of development. Countries like former U.S.S.R. and even U.S.A. and West Germany have achieved a rapid development through the adoption of economic planning.

10. External Factors:

The present situation in the world economy necessitates the active support of external factors for sustaining a satisfactory rate of economic growth in under-developed economies. Moreover, domestic resources alone cannot meet the entire requirement of resources necessary for economic development.

Therefore, at certain levels, availability of foreign resources broadly determines the level of economic development in a country.

The external factors which are playing important role in sustaining the economic development include:

(a) Growing export earnings for financing increasing import bills required for development,

(b) Increasing flow of foreign capital in the form of direct foreign investment and participation in equity capital and

(c) International economic co-operation in the form of increasing flow of foreign aid from advanced countries like U.S.A., Japan etc. and also increased volume of concessional aid from international institutions like I.M.F., I.B.R.D. (World Bank) and other regional bodies on economic co-operation like ASEAN, OPEC, E.E.C. etc.

11. Infrastructural Facilities:

Development of infrastructural facilities is also an important component of economic environment in a country like India.

12. Suitable Industrial Relations:

Suitable industrial relations are also an important determinant economic development in a country like India. Healthy trade union activities and cordial relations between employer and employee promote such economic environment for development.

 

B. Non-Economic Factors:

Economic factors alone are not sufficient for determining the process of economic development in a country like India. In order to attain economic development, proper social and political climate must be provided. In this connection, United Nations Experts observed, “Economic Progress will not occur unless the atmosphere is favorable to it. The people of a country must desire progress and their social, economic, legal and political situations must be favorable to it.”

Under-developed countries are facing various socio-political hurdles in the path of economic development. Thus in order to attain economic growth, raising the level of investment alone is not sufficient rather it is also equally important to gradually transform the out dated social, religious and political institutions which put hindrances in the path of economic progress.

Thus following are some of the important non-economic factors determining the pace of economic development in a country:

(a) Urge for Development:

It is the mental urge for development of the people in general that is playing an important determinant for initiating and accelerating the process of economic development. In order to attain economic progress, people must be ready to bear both the sufferings and convenience. Experimental outlook, necessary for economic environment must grow with the spread of education.

(b) Spread of Education:

Economic progress is very much associated with the spread of education. Prof. Krause has observed that, “Education brings revolutions in ideas for economic progress.” Education provides stimulus to economic growth as it teaches honesty, patriotism and adventure. Thus education is working as an engine for economic development.

(c) Changes in Social and Institutional Factors:

Conservative and rigid social and institutional set up like joint family system, caste system, traditional values of life, irrational behaviour etc. put severe obstacle on the path of economic development and also retards its pace. Thus to bring social and institutional change as per changing environment and to realize the modern values of life are very much important for accelerating the pace of economic development in a country.

(d) Proper Maintenance of Law and Order:

Maintenance of law and order in a proper manner also helps the country to attain economic development at a quicker pace. Stability, peace, protection from external aggression and legal protection generally raises morality, initiative and entrepreneurship. Formulation of proper monetary and fiscal policy by an efficient government can provide necessary climate for increased investment and also can stimulate capital formation in the country.

(e) Administrative Efficiency:

Economic development of a country also demands existence of a strong, honest, efficient and competent administrative machinery for the successful implementation of government policies and programmes for development. The existence of a weak, corrupt and inefficient administrative machinery, leads the country into chaos and disorder.

 

(f) Cultural Set Up:

Sound cultural set up also build up a better non-economic environment which are conducive towards economic development. Cultural activities improve the mental set up of the people in general and develop simultaneously a sense of bond-ness among various sections of people living in the society. All these create a belter environment for development.

(g) Politico-Legal Environment:

The politico-legal environment of the country is also an important determinant of economic development. Political stability and legal support for developmental activities creates a better environment for development. Reforms in the form of industrial policy reforms, labour reforms etc. should be enacted through proper legislation.

h) Natural Environment:

Suitable natural environment is also an important component of non-economic environment determining the business environment in the country. Thus the business environment in the country needs a natural support which includes suitable climate, balanced wealthier, suitable natural environment, i.e., free from flood and draught etc.

Some features of Indian economy are given below:

1. Low per Capita Income: India’s per capita income is very less as compare to developed countries.  As per the estimates of the Central Statistics Office (CSO), the per capita net national income of the country at current prices for the year 2015-16 is estimated to attain the level of Rs. 93231/-. The per capita net national income at constant prices (2011-12) for the year 2015-16 is estimated to attain the level of Rs. 77, 431/-. As per the CSO’s estimates, the per capital net national income at current prices is  

2012-13 ……Rs. 71050/-

2013-14 …… Rs. 79412/

2014-15 …….Rs. 86,879/- 

The per capita net national income at constant prices (base year 2011-12)

2012-13……. Rs. 65,664/-

2013-14……. Rs. 68867/-

2014-15. ……Rs. 72889/-

2. Agriculture Based Economy: Agriculture and allied sectors provide around 14.2% of Indian GDP while 53% of total Indian population is based on the agriculture sector.

3. Over population: in every decade Indian population get increased by about 20% . During the 2001-11 population increased by 17.6%. Currently India is adding the total population of Australia every year.  India is the possessor of around 17.5% population of the whole world.

4. Income Disparities: a report released by Credit Suisse revealed that the richest 1% Indians owned 53% of the country’s wealth, while the share of the top 10% was 76.30%. To put it differently, in a manner that conveys the political economy of this stunning 

statistic, 90% of India owns less than a quarter of the country’s wealth.

5. Lack of Capital Formation: Rate of capital formation is low because of lower level of income.  Gross domestic capital formation was 23.3% in 1993-94 increased upto the level os 38.1% in 2007-08 but declined upto 34.8% in 2012-13.

6. Backwardness of Infrastructural Development: As per an recent study, 25% of Indian families don’t have reach of electricity and 97 million peoples don’t have reach of safe drinking water and 840 million people in India don't have sanitation services. India needs 100 million dollar for infrastructural development upto 2025.

7. Market Imperfections: Indian economy doesn’t have good mobility from one place to other which hinders the optimum utilization of resources. These market imperfections create the fluctuations in the price of commodities every year.

8. Economy is Trapped in the Vicious Circle of Poverty: Prof. Ragner Nurkes says that ‘a country is poor because it is poor’.  It means poor countries are trapped in the vicious circle of poverty.

9. Use of Outdated Technology: It is very clear that Indian production technique is more labour oriented in nature. So it increases the cost of production of the products made in these countries.

10. Traditional Set Up of Society: Indian societies are trapped in the menace like casteism, communalist, male dominated society, superstitions, lack of entrepreneurship. These all factors hindered the growth of the country as a whole.