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NATURE OF INDIAN ECONOMY COURSE COMPLIMENT

• The star marked terms are defined in the TERMINOLOGY section provided at the end of the document.
• This is course compliment on macro economics. Unlike Maths and Statistics Course Compliments, this is quite comprehensive
• Please study macro economics with passion (that is an opinionated take on the subject is prescribed). This will help not only to
memorize the facts and figures, it will also serve the greater cause of making a good citizen (and that is really important).

Topic Argument for Underdeveloped Economy Argument for Developing Economy

Main Agriculture 1. Shift of labour force from Primary to
Occupation Secondary and Tertiary Sector.
CASE OF INDIA

1950 72.00% Majority is involved in

Agriculture or
2004 60.00%
agriculture dependent
industries.

2. Change in sectoral distribution of products –

shift from Primary to Secondary and Tertiary
Sector.

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Poverty Wide Spread 1. Rise in per capita income over the years

CASE OF INDIA

• 22% population below poverty

line
• Per Capita Income - $620 in
2004 (very low – lower than Sri
Lanka, Indonesia, China etc.)

2. Percentage of population under poverty line

decreasing

3. Rise in NNP over the years

1950 – 1951 Rs. 1,32,367 crore

2004 – 2005 Rs. 21,41,776 crore
15 times rise in 5 decades

Savings and Low savings and Low capital formation . 1. Growing Capital Base especially after the 2nd
Capital Five Year Plan where large number of
Formation CASE OF INDIA industries were installed by the government.

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• Gross Domestic Savings – 29%

• Gross Domestic Capital
Formations – 30%

(both are quite low compared to other

countries)
Human Low Improved social overhead capital
Development • roads, railways, irrigation, electricity have
CASE OF INDIA improved considerably
• Health conditions improved
127th rank (among 177 countries) in HDI
Year Bed population ratio Number of Doctors
1950 3.2 per 10000 61.8 thousand
2004 9.5 per 10000 625.1 thousand

• Literacy Rate Improved

Year Literacy rate
1950 18.33%
2001 65.38%

• Banking and Financial Sector

◦ NATIONALIZED IN 70'S
◦ Forwards loans to small farmers and
small scale industrialists
◦ Have grown considerably over the past
years.
Inequality High

CASE OF INDIA

Inequality is quite high in India.

Gini Coefficient - 0.33
Employment Underemployment and unemployment
high.

CASE OF INDIA

High and the rate is increasing.

Population High
growth rate
CASE OF INDIA

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Very High. More than 2% per annum.

Others • Backward production techniques
• Orthodox outlook
• Low participation in foreign trade
• Low investment in R&D

INDIA – A MIXED ECONOMY

Topic Free Market System State Controlled System
Ownership Agriculture, most of industries and services Large public sector especially for
sector under private ownership. strategic resources like atomic energy,
ammunition, transport.
Market Mechanism • Demand and Supply mostly fixes the Indicative economic planning
price
• Less government regulations
Other Monopoly houses like Tata, Birla, Reliance, DLF,
Infosys, Wipro are growing.

IMPORTANT: India is a mixed economy since here the means of production are
partly owned by private sector and partly by private sector

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TERMINOLOGY

TERM EXPOSITION

Bed Population Ratio the number of available hospital beds for every 10000 population
Capital Formation See Gross Domestic Capital Formation
CDS Current Daily Status
Five Year Plan The economy of India is based in part on planning through its five-year plans,
developed, executed and monitored by the Planning Commission. With the Prime
Minister as the ex officio Chairman, the commission has a nominated Deputy
Chairman, who has rank of a Cabinet minister. Montek Singh Ahluwalia is currently the
Deputy Chairman of the Commission. The tenth plan completed its term in March 2007
and the eleventh plan is currently underway.
Gini Coefficient The Gini coefficient measures the inequality of income distribution within a country. It
varies from zero, which indicates perfect equality, with every household earning exactly
the same, to one, which implies absolute inequality, with a single household earning a
country's entire income. Latin America is the world's most unequal region, with a Gini
coefficient of around 0.5; in rich countries the figure is closer to 0.3.
Gross Domestic Statistically it measures the value of additions to fixed assets purchased by business,
Capital Formation government and households less disposals of fixed assets sold off or scrapped.
HDI The Human Development Index (HDI) is an index used to rank countries by level of
"human development", which usually also implies whether a country is developed,
developing, or underdeveloped.
Means of production Means of production (abbreviated MoP; German: Produktionsmittel), are things used by
human labourers to create products. They include two broad categories of objects:
instruments of labour (tools, factories, infrastructure, etc.) and subjects of labour
(natural resources and raw materials). People operate on the subjects of labour, using
the instruments of labour, to create a product; or, stated another way, labour acting on
the means of production creates a product.
Nationalization Nationalization, also spelled nationalisation, is the act of taking an industry or assets
into the public ownership of a national government or state.
NNP Net national product (NNP) is the total market value of all final goods and services
produced by residents in a country or other polity during a given period (gross national
product or GNP) minus depreciation. The net domestic product (NDP) is the equivalent
application of NNP within macroeconomics, and NDP is equal to gross domestic
product (GDP) minus depreciation: NDP = GDP - depreciation.
NSSO National Sample Survey Organisation
Per capita income Per capita income means how much each individual receives, in monetary terms, of the
yearly income generated in the country. This is what each citizen is to receive if the
yearly national income is divided equally among everyone.

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Poverty Line Rs. 368 monthly income in rural area and Rs. 560 monthly income in urban area,
Primary Sector The primary sector of the economy extracts or harvests products from the earth. The
primary sector includes the production of raw material and basic foods. Activities
associated with the primary sector include agriculture (both subsistence and
commercial), mining, forestry, farming, grazing, hunting and gathering, fishing, and
quarrying.

In developed and developing countries, a decreasing proportion of workers are

involved in the primary sector.
R&D Research and Development
Secondary Sector The secondary sector of the economy manufactures finished goods. All of
manufacturing, processing, and construction lies within the secondary sector. Activities
associated with the secondary sector include metal working and smelting, automobile
production, textile production, chemical and engineering industries, aerospace
manufacturing, energy utilities, engineering, breweries and bottlers, construction, and
shipbuilding.
Sectoral Distribution Participation of labour in different sectors.
Social overhead Capital spent on social infrastructure, such as schools, universities, hospitals, libraries.
capital
Tertiary Sector The tertiary sector of the economy is the service industry. This sector provides services
to the general population and to businesses. Activities associated with this sector
include retail and wholesale sales, transportation and distribution, entertainment
(movies, television, radio, music, theater, etc.), restaurants, clerical services, media,
tourism, insurance, banking, healthcare, and law.
In most developed and developing countries, a growing proportion of workers are
devoted to the tertiary sector.
Underemployment Underemployment or disguised unemployment means apparently people are employed
but their contribution to the production is very very low. In other words their productivity
is nil or negative. Such type of unemployment is more common in agricultural sector.
Here many people work in small farm land but their contribution is almost nil.

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