INDIAN ECONOMY : AN OVERVIEW

• Indian economy is considered as the fourth largest in the world judged in

terms of PPP, after USA., Japan, and China, with a GDP of $3.61 trillion in
2005.
• Even in terms of normal $-Rupee exchange rate, Indian economy is the 12th
largest economy with $719.8 billion in 2005.
• Indian economy is the second fastest growing economy in the world after
China, with annual average growth rate of 7.5 per cent in 2005-06 and is
estimated to achieve 8 per cent growth rate in 2006-07.
• However, India has got the second largest population of 111.29 crores in 2005,
after China ,which brings down the per capita GDP to $3300 per annum at
PPP. In terms of normal $-Rupee exchange rate, it will be still lower at $1500
per annum. Even so the growth rate of Per capita GDP has been 5.7 per cent
in 2005-06.
• Indian demographic scene though appears frightening, has got some silver
lining. India has got the highest working group population of 84.85 crores in
the age group of 15-59 years and a reasonable dependency ratio of 1.8
6. Indian economy is as diverse as its culture, producing a wide ranging
agricultural crops including food crops and a variety of non- food crops;
industrial goods comprising, basic goods, capital goods, and consumer goods
produced by large, small and cottage industries. It has earned brand name in
IT services.
 POPULATION GROWTH AND ITS ECONOMIC IMPACT
1. Indian population growth has slowed down though in backward regions and among the poor
people the growth rate is still high. According to 2001 Census Indian economy experienced 1.8
per cent of annual growth of population during the decade 1991-2001.By 2005, this growth rate
further declined to 1.38 per cent per annum. Thus India has experienced demographic transition
2. The literacy rate has increased to from 18.33 in 1951 to 65.38 in 2001.Rural literacy level has
increased from 12.10 in 1951 to 59.40 in 2001 whereas urban literacy has increased from 34.59 in
1951 to as high as 80.30 in 2001.and it is higher among Males and in urban areas. Male literacy
went up by 11% from 1991 to 2001 whereas female literacy increased by 14.4 % during the
same period..
3. Work participation rate, that is the proportion of workers in the total population, increased by
1.6 % between 1991 and 2001.Interestingly, work participation for males remained stagnant at
51.7 % whereas that for females increased by 3.3 to 25.6 % in 2001 indicating increasing female
labour force. The estimated labour force in 2005 was 49.64 crores.
4. Sex ratio which declined to 927 females for 1000 males in 1991 increased marginally to 933
females for 1000 males in 2001.This would imply that female infanticide has declined marginally.
5. 60 per cent of our labour force is engaged in low productive agriculture, 17 per cent is engaged in
industry and 23 per cent is engaged in services.
6. About 65 per cent of India’s population is in the working age group of 15 to 59 years. The average
age of an Indian is 26 years. This would imply that we have more working age group than
dependents.
 HISTORICAL PERFORMANCE OF INDIAN ECONOMY
Indian economy performed badly under British Rule. Its
performance improved under five-year plan regime. It has done
impressively under reform period. See Table below.

Table 1. Rates of Economic Growth in India During 20th and 21st

Century.

Sector 1900-1946-47 1950-51 -2004-05

Primary 0.4 2.5

Secondary 1.7 5.3

Tertiary 1.7 5.4

National
Income/GDP 1.0 4.2

Per capita
Income/GDP 0.2 2.1

Sources: Sivasubramonian; CSO

 ECONOMIC GROWTH IN INDIA SINCE INDEPENDENCE
1. Economic growth in India has not been uniform since independence. But
Indian economy has moved to a higher growth path after the introduction
of structural economic reforms. See Table 2.below.*

Sector 1950-51 to 1979-80 1980-81 to 1990-91 1991-92 to 2004-05

Primary 2.2 3.1 2.5

Secondary 5.3 6.7 6.0

Tertiary 4.5 6.6 7.8

GDP Total 3.5 5.4 5.9

GDP P.C. 1.4 3.2 4.1

Source: CSO *( All figures are at 1993-94 prices)

 Table 3. Changing Structure of the Indian Economy
• Period (Decade) Primary Sector Secondary Sector Tertiary Sector
• (% of GDP) (% of GDP) (% of GDP)
• Current Prices
• 1950-60 52.11 16.11 32.59
• 1961-70 46.38 20.04 34.02
• 1971-80 42.36 22.46 35.36
• 1981-89 34.58 26.12 39.23
• 1990-2002 28.34 26.77 44.89
• 1993-2002 27.62 26.73 45.65
• Constant Prices(1993-94)
• 1950-60 56.11 16.01 28.27
• 1961-70 47.76 21.07 31.37
• 1971-80 42.76 22.76 34.38
• 1981-89 36.42 25.00 38.58
• 1990-2002 27.79 27.04 45.16
• 1993-2002 26.83 27.10 46.07

• Source: CSO, National Income Accounts.

 MAJOR ECONOMIC PROBLEMS OF INDIA
India is facing many economic problems of which the following are major economic
problems: i. Growing unemployment; ii. Persistent poverty; iii. Widening economic
inequalities; iv. Low productivity; v. Inadequate Infrastructure; and vi. Dependence on oil
imports.
Table 5. Estimates of Unemployment in India ( in millions)

Plan Period Unemployment Addition to Total employment New Employment Total

at the beginning labour force required opportunities Unemployment
I Plan
(1951-55) 3.3 9.0 12.3 7.0 5.3
II Plan
(1956-61) 5.3 11.8 17.1 10 0 7.1
III Plan
(1962-67) 7.1 17.0 24.1 14.5 9.6
IV Plan
(1969-74) 12.6 20.4 33.0 19.0 14.0
V Plan
(1974-79 14.0 22.0 36.0 15.4 20.6
VI Plan
(1980-85) 20.6 35.4 56.0 46.8 9.2
VII Plan
(1986-91) 9.2 39.4 46.6 40.0 8.6
VIII Plan
((1992-97) 23.0 35.0 58.0 50.0 8.0
IX Plan
(1997-2002) 8.0 41.0 49.0 NA NA

Source: Planning Commission.

 TRENDS IN POVERTY IN INDIA
Persisting poverty in India has attracted the attention of all sections of the society.
The level poverty in the 1970’s was more than 60 per cent. In subsequent years it has
declined and after the introduction of economic reforms high growth rate of GDP has
reduced poverty substantially. This is evident from the data presented below.
Year Percentage of population in Poverty
Urban Area Rural Area
1983 38.33 49.02
1986-87 35.39 45.21
1987-88 36.52 42.23
1988-89 34.76 36.69
1990-91 34.79 40.07
1991 36.37 46.12
1992 38.86 44.19
1993 30.94 39.65
1993-94 30.94 39.65
1999-2000 34.50
2004-05 27.80

Source:NSSO
 INDIA AT A GLANCE

Indian Economy has significantly grown in the recent years. Both social and
economic indicators have reflected their respective positive impact for the
development of the Economy.
 In the Social sector the best example today is 108 million children attend
primary schools in India by making the country’s education system the
second largest in the world after China.
 In the economic sector Gross Domestic Product (GDP) in nominal terms of
US$692 billion in 2004, has made the country the world’s tenth largest
economy. Real GDP grew by 6.9 percent in 2004/05 compared to 8.5
percent a year earlier.
 Prospects for real GDP growth for 2007-08 is 8 to 8.5 percent.
 External position of the economy is becoming significantly stronger.
Exports have grown, especially exports of services, which grew by 105
percent in 2004-05.
 Growth in services has largely been fueled by the information technology
boom in which India is emerging as a world leader.