Indian Economy & Socio-Economics issues
Unit 1 (Indian Economy & Socio- Economics Issues)
★ Features of Indian Economy
★ Unemployment
★ Poverty
Economics - It is the study of production, distribution and consumption of goods and services in a society.
It is concerned with the optimum allocation of scarce resources for maximum humane welfare.
Adam Smith defines it as 'Science of Wealth'.
Classification of Economics
Economics can be broadly classified into 2 broad categories.
- Micro Economics
- Macro Economics
Micro Economics - It is the branch of economics that studies the behaviour of individual economic units.
For Example - Income of a person, Output of a firm, Price of a product, etc.
Macro Economics - It studies the economic system as a whole, i.e., it takes into account the overall aggregates and averages of an economy.
For Example - National Income, GDP, Price level, etc.
Economy - It refers to production/economic activities in a given region.
Features of Indian Economy
1. Low Standard of living
- Low Standard of living is reflected by the low per capita income of the country.
Per Capita Income of India (in thousand)
- FY 2018-19 = 126.41
- FY 2019-20 = 135.05
- FY 2020-21 = 126.97 (decreases due to pandemic)
- FY 2021-22 = 150.33
Per Capita Income is measured in two exchange rates
- Purchasing Power Parity (PPP)
- Market Exchange Rate
Purchasing Power Parity - It is the rate of currency conversion that try to equalise the purchasing powers of different currencies by eliminating the differences in price levels between countries. For India it is approximately $19.
Market Exchange Rate - It is the exchange rate at which one currency will be exchanged for another.
PPP (2019-20) - ~ $6920
Market Exchange Rate (2019-20) - ~$1825 (for 2019-18 market exchange rate is ~$74)
If two countries have same per capita income according to the Market Exchange rate, then it may does not have the same standard of living.
But if two countries have same per capita income according to the PPP, then both will have same standard of living.
Per Capita income of different countries (in PPP) for the year 2019-20
- Qatar - $129000
- USA - $62000
- China - $18000
- India - $6920
- Pakistan - $5700
- World average - $ 18000
2. Scarcity of Capital
- Scarcity of Capital → low investment in factories, machinery as well as Human resource → which lead to unemployment, poverty and inequality.
3. Unemployment
4. Poverty
5. Inequality (Income inequality)
- The income inequalities is given by Simson Kuznets' Kuznets' Hypothesis.
- Kuznets Curve shows the relationship between inequalities and the (real) per capita income (by alleviating the impact of inflation).
- It states that with increasing Per capita income the inequalities will increase but after a certain point with further increase in income will not lead to increase in inequality rather decrease in inequalities.
- Reason for decreasing behaviour of the graph, i.e., inequalities -
- Because of developmental and welfare schemes
- Increase in per capita income → increase in government revenue → government will have more capital for investment
- Trickle down theory.
- Trickle down theory - It states that benefits of economic growth automatically percolates down to the lowest strata of the society, i.e., economic growth automatically eliminates poverty, unemployment as well as inequalities. (it works over a long period of time).
6. Regional inequalities (Rural & Urban)
7. High growth rate of population
- Malthusian theory - It states that the Population of a country increase in Geometric Progression (GP) whereas the food availability increase in Arithmetic Progression (AP), which in long run lead to malnutrition, food insecurity, etc.
- Theory of demographic transition - It was given by Notestein & Thomson.
Stage I
- Birth rate - high
- Death rate - high
- Population growth - low
Stage II
- Birth rate - high
- Death rate - low
- Population growth - High
Stage III
- Birth rate - low
- Death rate - low
- Population rate - low
Note - India is in Stage II.
Modern Theory of Demographic transition
Stage I
- Birth rate - high
- Death rate - high
- Population growth - low
Stage II
- Birth rate - high
- Death rate - begin to fall
- Population growth - begin to increase
Stage III
- Birth rate - high
- Death rate - low
- Population growth - high
Stage IV
- Birth rate - begin to fall
- Death rate - low
- Population growth - begin to fall
Stage V
- Birth rate - low
- Death rate - low
- Population growth - low
As per this theory, India is in Stage IV.
8. Predominance of Agriculture
- Contribution of various sectors in GDP
- Agriculture -
- 1947 - 60%
- 2018-19 - 16% (this is 1to 3% in developed countries)
- Industry -
- 1947 - 18%
- 2018-19 - 28%
- Service -
- 1947 - 22%
- 2018-19 - 56%
Note - Decline in share does not mean the decrease in production. It is the share of agriculture as compared to others.
- Contribution in employment
- Agriculture -
- 1947 - 75%
- 2018 - 49% (this is 3 to 5% in developed countries)
- Industry -
- 1947 - 12%
- 2018 - 24%
- Service -
- 1947 - 13%
- 2018 - 27%
Service Sector -
Share in GDP = 56% but contribution in employment = only 27%, it shows that In India, Service Sector is less labour intensive.
Agriculture Sector -
Share in GDP = 16% but contribution in employment = 49%, it shows that more than required persons are engaged in it and thus have relatively less per capita income.
9. Dualistic economy
- It emphasised on the sharp difference between the traditional and modern sector.
- Agriculture - Traditional tools and methods are used
- Industry - Modern technology accompanied with mass production.
In developed country this difference is not so drastic.
10. Low level of well being
- i.e., quality of life is low (as depicted by low levels in education, health and status of living).
- Human development index -
- It was released by UNDP.
- Rank of India - 132 out of 192 countries (2022)
- Gender inequality index -
- It was released by UNDP.
- Rank of India - 123 out of 161 countries (2022)
- Global hunger index -
- It was released by Concern world wide and Welt Hunger Hlife.
- Rank of India - 107 out of 121 countries (2022)
11. Mixed economy
- India follows a system of Mixed economy.
Various different types of economic system -
- Capitalist economy
- Socialist economy
- Mixed economy
- Communist economy
Capitalist Economy -
- Private sectors are predominant.
- Least government intervention.
- Market - Works on the principle of Laissez Faire.
- Resource allocation - by market mechanism
- Motive of production - profit
- Advantage - High efficiency
- Disadvantage - may lead to social injustice/inequalities.
Socialist Economy -
- Most economic activities are under public sector/government.
- More intervention of government.
- Market - regulated by rigid government regulations and policies.
- Resource allocation - by government/economic planning.
- Motive of production - Social welfare
- Advantage - Social justice, Equitable distribution, etc.
- Disadvantage - Low efficiency
Mixed Economy -
- It has features of both Capitalist as well as Socialist Economy (i.e., Public + Private).
- Moderate and selective government intervention.
- Resource allocation - by modified market mechanism (as per the needs of the country).
- Motive of production - both (for public, it is social welfare and for private, it is profit).
- Advantage - Efficiency as well as social welfare
- Disadvantage - Compromise both objectives
Communist Economy -
- It is the extreme form of Socialist Economy where government regulate each and every mode of economy.
- No private sector, everything is owned by the government.
- Class less society, i.e., egalitarian society.
As per the Karl Marx, it is an ideal society (Class less society), where everyone gets according to his needs.
"From each according to his ability,
to each according to his needs."
India's Economic Policy
Pre-reform era (1947-91)
- Tilted towards Socialist economy.
- More government intervention.
Era of LPG (1991-2004) -
- Market oriented economy
- LPG reform (LPG → reduce government intervention & the economy was prone to world market)
- Efficiency improved
- Social justice compromised
Progressive economy (2004 - till now)
- LPG policy
- Increasing government intervention in social sectors such as education, health, food security, etc.
India being one of the fastest growing economy in the world.
- From 1991 to till now - India's Growth rate = 7%
- World's growth rate - 3.3%
Share of India in World GDP -
- 1991 - 2.5%
- 2018 - 7.6%
Share of India in World trade -
- 1991 - 0.5%
- 2018 - 2.2%
Development vis-à-vis Size of Economy
India
- Size of Economy - Big
- Level of Development - Low
- Progress ratio - High
USA
- Size of Economy - Big
- Level of Development - High
- Progress Ratio - Moderate
Singapore
- Size of Economy - Small
- Level of Development - High
- Progress ratio - High
Thus, the size of economy does not mean high level of development.
Previous Article - Indian Economy: An introduction
Next Article - Inequalities
Notes on other subjects
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Note - This is my Vision IAS Notes (Vision IAS Class Notes) and Ashutosh Pandey Sir's Public Administration Class notes. I've also added some of the information on my own.
Hope! It will help you to achieve your dream of getting selected in Civil Services Examination 👍
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