Character and Size of the Indian Economy

Indian Economy

• India follows a mixed economy policy.
• In a mixed economy, both government-owned (public sector) and privately-owned (private sector) businesses exist.
• The goal of a mixed economy is to create a socialist society in a welfare state.
• In a mixed economy, the public sector works to achieve social and economic goals and priorities, guided by an economic plan.
• A mixed economy is always planned, and India is a good example of a mixed economy.
• The public and private sectors are seen as working together.

Size of the Indian Economy

• Real GDP or GDP at Constant (2011-12) Prices in the year 2023-24 is estimated to attain a level of ₹171.79 lakh crore, as against the Provisional Estimate of GDP for the year 2022-23 of ₹160.06 lakh crore, released on 31st May, 2023. The growth in real GDP during 2023-24 is estimated at 7.3 per cent as compared to 7.2 per cent in 2022-23.

Nominal GDP or GDP at Current Prices in the year 2023-24 is estimated to attain a level of ₹293.90 lakh crore, against ₹269.50 lakh crore in 2022-23, showing a growth rate of 9.1 percent.

• This was a 5% growth from the previous year (according to revised estimates for 2011-2012).

Agriculture in the Indian Economy

• Agriculture is very important to the Indian economy.
• In 2011-2012, the agricultural sector contributed 14.1% of India’s GDP (at 2004-2005 prices).
• About 10% of the Indian population works in agriculture.

Agriculture in India

• About 43% of India’s land is used for farming.
• More than 70% of people in rural areas rely on farming for their main source of income.
• Most farming in India depends on the monsoon season because there aren’t enough irrigation systems.
• Agriculture, along with fishing and forestry, makes up one-third of India’s economy and is the biggest contributor.
• The average size of a farm in India is small and often divided into smaller pieces.
• India sells about 20% of all the things it makes from farming to other countries.
• India is the second-largest producer of farm goods in the world.
• India is the world’s largest producer of milk, cashew nuts, coconuts, tea, ginger, turmeric, and black pepper.
• India has the most cattle in the world, with about 285 million.
• India is the second-largest producer of wheat, rice, sugar, peanuts, and fish from islands.
• India is the third largest producer of tobacco in the world.
• India is the largest producer of bananas and seprta in the world.
• India produces 10% of all the fruits in the world.
• The government wants the agriculture sector to grow by 4% per year, which is the same goal as the previous five-year plan.

National Income Concepts

• National income is the total value of all goods and services produced in a country during a certain period of time.
• It is different from national wealth, which is the total value of all assets owned by a country’s citizens.
• National income measures how productive an economy is at turning resources into goods and services.
• There are different ways to measure national income, including:

1. Gross National Product (GNP): This is the total value of all goods and services produced by a country’s citizens, regardless of where they are produced.
2. Gross Domestic Product (GDP): This is the total value of all goods and services produced within a country’s borders, regardless of who owns the businesses that produce them.

Gross Domestic Product (GDP):

• GDP is the total value of all goods and services produced within a country’s borders by its citizens over a specific time.

Net National Product (NNP):

• NNP is the value of GDP minus the depreciation of assets.

Personal Income:

• Personal income is the income received by individuals in a country.

Disposable Personal Income:

• Disposable personal income is the amount of money individuals have left after paying taxes.

Planning in India:

• Planning in India is based on the country’s objectives and resources.

Key points about planning in India:

• Plans are made for all aspects of the economy and society.
• The plans are based on economic data, but sometimes the data is not accurate.
• India has completed 11 Five-Year Plans since 1951.
• The main goals of the Five-Year Plans are:
• Economic growth - Becoming self-sufficient
• Reducing unemployment
• Reducing income inequality
• Ending poverty and modernizing the country
• Each Five-Year Plan considers the challenges and opportunities of the time and makes necessary adjustments.
• The Planning Commission is a group of experts that helps the government make plans.
• The National Development Council is a group of government officials and experts that helps the government make plans.
• In 1934, M. Visvesvaryya wrote a book called “Planned Economy of India” in which he argued that India needed to have a plan for its economy.

History of Planning in India:

• In 1944, a department called the Planning and Development Department was created, led by A. Dalal.
• In 1946, the interim government established the Planning Advisory Board.
• In 1947, the Economic Programme Committee was formed, headed by Jawaharlal Nehru.

Purpose of Five Year Plans:

• India is a diverse and democratic country.
• Making decisions requires agreement and consultation between the central government, state governments, and various organizations.
• Over the past 60 years, planning in India has had three main goals:
  1. To create a shared framework of objectives and strategies for making consistent decisions.
  2. To understand the reasons behind these decisions.
  3. To outline a strategy for faster economic growth and improved well-being for all citizens.

Planning Commission (PC):

• The Planning Commission (PC) was established in 1950 to oversee and guide the planning process in India.
• It is responsible for formulating Five Year Plans, which set out the government’s economic and social policies and priorities for the next five years.
• The PC also monitors the implementation of these plans and makes adjustments as needed.
• In March 1950, the Indian government created a special group called the Planning Commission. The Prime Minister of India is the leader of this group.
• The first person to lead the Planning Commission was Pt Jawaharlal Nehru.
• The Planning Commission’s job was to figure out how much money and resources India had, and then make a plan for how to use them in the best way possible. They also decided which things were most important to focus on.
• The Planning Commission is not part of the official government structure, and it doesn’t have any legal power.

National Planning Council (NPC)

• The NPC is a group of experts who give advice to the Planning Commission. It was started in 1965.
• The NPC includes people who know a lot about different parts of the Indian economy.

National Development Council (NDC)

• The NDC is a group that includes the chief ministers of all the states in India, as well as some other important people.
• The NDC’s job is to give advice to the Planning Commission and the government on how to develop India’s economy. The Planning Commission’s members make up the National Development Council. The Prime Minister of India is in charge of the Council. The NDC was first established in 1952 as an addition to the PC to involve the states in the creation of the plans.

Five Year Plans

The Planning Commission creates development plans to establish India’s economy on a socialistic pattern in successive five-year periods known as the Five-Year Plans. The organization was established to develop fundamental economic policies, create plans, and monitor their progress and implementation. It is made up of:

• Planning Commission of India
• National Planning Council
• National Development Council
• State Planning Commissions

Table 4.1: Five-Year Plans at a Glance

Five Year Plans in India

Third Plan (1961-62 to 1965-66)

• Focused on the long-term development of India’s economy.

Annual Plan (1966-67 to 1968-69)

• A break in the Five Year Plan due to the Chinese and Pakistani wars.

Fourth Plan (1969-70 to 1973-74)

• Introduced a ‘scientific temper’ to Indian agriculture.

Fifth Plan (1974-75 to 1977-78)

• Terminated early by the Janata Government, which introduced the ‘Rolling Plan’ concept.

Annual Plan (1978-79 to 1979-80)

• Launched by the Janata Government.

Sixth Plan (1980-81 to 1984-85)

• Originally launched by the Janata Government, but abandoned by the new Government. A revised plan for 1981-85 was approved.

Seventh Plan (1985-86 to 1989-90)

• Focused on food, work, and productivity.

Annual Plan (1990-91 to 1991-92)

• Emphasized maximizing employment and social transformation.

Eighth Plan (1992-93 to 1996-97)

• Aimed for faster economic growth and faster growth of employment opportunities.

Ninth Plan (1997-98 to 2001-02):

• Focused on agriculture and rural development.
• Aimed to increase the economy’s growth rate.
• Ensured food and nutritional security for all.
• Controlled the population growth rate.
• Empowered women and socially disadvantaged groups.
• Promoted participatory institutions like ‘Panchayati Raj’ institutions, cooperatives, and self-help groups.

Tenth Plan (2002-2007):

• Reduced unnecessary spending.
• Improved the farm sector, financial sector, and judicial system.
• Eliminated harassment, corruption, and red tapism.
• Controlled drought, floods, and population growth.

Growth: The economy grew at a faster pace.

FDI and FPIs: More foreign companies invested in India.

Labor and Economic Growth: More people had jobs and the economy grew.

2007-2012 (Eleventh Plan):

• Agriculture, education, and healthcare improved.
• More people had access to safe drinking water and scholarships.
• Development services and the National Rural Employment Guarantee Scheme reached more people.
• There was a focus on HIV/AIDS, polio, urban development, and care for women and children.
• Communicable diseases were treated.

2012-2016 (Twelfth Plan):

• The goal was faster, more inclusive, and sustainable growth.
• Challenges included energy, water, and the environment.
• The government wanted to create a world-class infrastructure.
• Agriculture needed to perform better for growth to be more inclusive.
• More jobs needed to be created, especially in manufacturing.
• Health and education needed to be improved.

Education and skill development are given importance.

We need to make sure that our education system is helping people learn the skills they need to get good jobs.

We need to improve the effectiveness of programs that help the poor.

We need to make sure that the programs we have in place to help people who are struggling are actually working.

We need to create special programs for socially vulnerable groups.

We need to make sure that we are providing support for people who are at a higher risk of poverty, such as women, children, and the elderly.

We need to create special plans for disadvantaged/backward regions.

We need to make sure that we are providing support for areas that are struggling economically. - The number of people living in poverty in India has decreased.

• In some states, like Himachal Pradesh and Tamil Nadu, poverty has decreased by a lot.
• In other states, like Assam and Meghalaya, poverty has increased.
• Some large states, like Bihar and Uttar Pradesh, have only seen a small decrease in poverty.
• The poorest people in India are from the scheduled tribes and scheduled castes.
• In rural areas, almost two-thirds of scheduled tribes and scheduled castes are poor. - In some states like Manipur, Orissa, and Uttar Pradesh, more than half of the people belonging to certain religious groups are poor.
• Among religious groups, Sikhs have the lowest poverty rate in rural areas (11.9%), while Christians have the lowest poverty rate in urban areas (12.9%).
• In rural areas, Muslims have a very high poverty rate in states like Assam (53.6%), Uttar Pradesh (44.4%), West Bengal (34.4%), and Gujarat (31.4%).
• In urban areas, Muslims have the highest poverty rate in all of India (33.9%).
• Similarly, in urban areas, Muslims have a high poverty rate in states like Rajasthan (29.5%), Uttar Pradesh (49.5%), Gujarat (42.4%), Bihar (56.5%), and West Bengal (34.9%).
• When it comes to different jobs, almost 50% of agricultural workers and 40% of other laborers are below the poverty line in rural areas. In urban areas, the poverty rate for casual laborers is 47.1%.
• As expected, people with regular wage or salaried jobs have the lowest poverty rate. - In the state of Haryana, which is known for its agricultural success, a large number of agricultural workers, about 55.9%, are poor. In comparison, in the state of Punjab, only 35.6% of agricultural workers are poor.
• In urban areas, the number of casual labourers who are poor is very high in certain states. For example, in Bihar, 86% of casual labourers are poor, in Assam, 89% are poor, in Orissa, 58.8% are poor, in Punjab, 56.3% are poor, in Uttar Pradesh, 67.6% are poor, and in West Bengal, 53.7% are poor.
• When we look at the education level of the head of the household, we find that in rural areas, households where the head has only a primary level education or lower have the highest poverty rate. On the other hand, households where the head has a secondary or higher education have the lowest poverty rate.
• In rural areas of Bihar and Chhattisgarh, almost two-thirds of households where the head has only a primary level education or lower are poor. In Uttar Pradesh, this number is 46.8%, and in Orissa, it is 47.5%.
• The trend is similar in urban areas. Households where the head has only a primary level education or lower are more likely to be poor than households where the head has a secondary or higher education.
• When we look at the age and sex of the head of the household, we find that in rural areas, households headed by minors have a poverty rate of 16.7%, households headed by females have a poverty rate of 29.4%, and households headed by senior citizens have a poverty rate of 33.3%. - In cities, families led by children have a poverty rate of 15.7%, while families led by women and senior citizens have poverty rates of 22.1% and 20%, respectively. The overall poverty rate is 20.9%.
• India doesn’t have a single way of measuring poverty.
• The Arjun Sengupta Report says that 77% of Indians live on less than 20 rupees a day.
• The N. C. Saxena Committee report says that 50% of Indians are below the poverty line.
• The Oxford Poverty and Human Development Initiative says that 645 million people in India live in multi-dimensional poverty.
• The NCAER (National Council of Applied Economic Research) Report says that 48% of Indian households earn more than 90,000 rupees (US $1998) per year.
• The World Bank estimates that about 100 million Indian households (about 456 million people) are below the poverty line.
• Note: The Planning Commission of India has accepted the The Tendulkar Committee report found that almost 37 out of every 100 people in India live in poverty.