Basic Characteristics of Indian Economy-2

8/18/2019 Basic Characteristics of Indian Economy-2

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BASIC FEATURES OF

INDIAN ECONOMY


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Per-capita income is the overall income of a population divided by the number of peopleincluded in the population.


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DEFINITION OF 'PURCHASINGPOWER PARITY - PPP' An economic theory that estimates the amount of

adjustment needed on the exchange rate betweencountries in order for the exchange to be equivalentto each currency's purchasing power.

The relative version of PPP is calculated as:

here:"#" represents exchange rate of currency $ tocurrency %"P$" represents the cost of good "x" in currency $

"P%" represents the cost of good "x" in currency

%&nvestopedia explains 'Purchasing Power Parity PPP'


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&n other words( the exchange rate adjusts so that an identicalgood in two different countries has the same price whenexpressed in the same currency. )or example( consider alaptop computer that costs $(*++ ,uros in -ermany and anexchange rate of % ,uros to $ .#. /ollar. &f the same laptop

cost $(+++ dollars in the nited #tates( .#. consumers wouldbuy the laptop in -ermany. &f done on a largescale( the influx of .#. dollars would drive up the price of the ,uro( until itequali0ed at $.* ,uros to $ .#. /ollar the same ratio of theprice of the laptop in -ermany to the price of the laptop in

the .#. The theory only applies to tradable goods( not to immobile

goods or localservices. The theory also discounts several real world factors( such as transportation costs( tariffs andtransaction costs. &t also assumes there are competitive mar1ets for the goods and services in both countries.

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CLASSIFICATION OF ECONOMIES

,conomy/evelopedeconomies

/eveloping,conomies


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According to orld /evelopment 2eport %+$%published by orld 3an1

,conomies are classified according to incomeper capita and by region .

%+4 economies which have a population of morethan 5+(+++ are ran1ed by their levels of 6-rossnational income7-8& per capita .


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DEFINITION OFUNDERDEVELOPED COUNTRIESAccording to The nited 8ations

9An underdeveloped country is one which has real per capitaincome that is lower in relation to the real per capitaincome of the #A(anada(Australia and estern ,urope

According to Todaro( 9nderdeveloped economy is thateconomy in which there are

low level of living absolute poverty low per capita income low consumption levels poor health services high death rates dependence on foreign economies.


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BASIC FEATURES OFUNDERDEVELOPED COUNTRIES ;ow per capita income ;ow level of living ;ow level of productivity

,xcessive /ependence on agriculture ;ow rate of capital formation Primitive Techniques of production nemployment and underemployment

nderutili0ation of natural resources /ualistic economy ,xport of primary products Population explosion


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ndeveloped countries6/


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INDIAN ECONOMY

The Indian economy can be analyzed from variousangles such as ;

The form of Economic Organization- Organizational

setup of the Indian economy is a mixture of capitalism

and socialism ,commonly known as Mixed conomy Structure of the economy!"tructure wise ,India

has a dualistic character where the small ,but

growing modern sector is coexisting with vast and

sprawling traditional sector# Stage of Growth and development- Indian

conomy is a developing economy


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INDIA :A DEVELOPING ECONOMY

India ,which for long has been defined as an

underdeveloped country is now called a

developing economy# $ developing economy is characterized by a

mixture of features of an underdeveloped

stagnant economy and those of a steadily progressing economy#


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FEATURES OF INDIA’SUNDERDEVELOPED ECONOMY 1. Low p! "#p$%# $&"o:

&ndia per capita income is very low ascompared to the advanced countries.

According to the World Development Report 2012,India had

per capita national income of 1!"0 in 2010.India#s percapita income is almost $0 times lo%er than that ofs%it&erland,!'times lo%er than the ()A and around

!0times lo%er than (* and +ermany.


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PER CAPITA GNI AT MAR(ET

PRICES )*+11, IN US DOLLARSCo&%!$ E/"0#& R#% B#$ P!"0#$& Pow!

P#!$%2 B#$

#wit0erland >?(@++ *%(*>+

#A @4(?%+ @4(4%+

APA8 @@(B++ 5*(55+

-ermany @@(%>+ @+(%5+

.C 5>(4@+ 5?(+$+

&ndia $(@$+ 5(*B+

hina @(B@+ 4(BB+


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*.Low 343 o5 3$4$&- ;ow per capita income inthe underdeveloped countries results in verymuch depressed levels of living of their people

&n terms of food value (the consumption in theunderdeveloped countries is around %+++ calorieswhile the average calorie inta1e in advancedcountries is around 5+++.

or e.g. -he per capita daily calorie supply in India is only

210" %hereas in the (.).A it is !,/anada !""$ and)%it&erland !'"$


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3.Technological Backardness-. Thetechniques of production employed in mostof the sectors of the underdeveloped

economies are obsolete or outdated. &n &ndia( for e.g. agriculture is largely carriedon with the techniques which are centuriesold. Doderni0ation in the industrial sector is

also very limited


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&ndia has low levels of living. According to the datashown by Euman /evelopment 2eport %+$5.

Total population 6%+$%7F $(%*4.@ million

Total unemployment rate6both -enders7%+$+F5.?percent

Adult literacy rate6ages $* and older76%++*%+$+7F?%.4 ;ife expectancy of birth 6%+$%7F?*.4year

Population not using an improved water source6%+$+7F$$.B percent &nternational Poverty line:Population belowG$.%* a day

6%++%%+$$7F5%.> percent Population below national poverty line6%++%%+$%7


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!."igh #ne$ualit% o& #ncome-The gap betweenwealth and poverty is exceedingly wide in &ndia. Ahandful of rich persons get a relatively large shareof the total income while the large mass of poor

population gets a relatively small portion of it. &nequalities of income distribution are to be

observed both in the rural and urban sectors ofthe economy.

&nequalities of income are to be seen in the formof unequal distribution of land in the agriculturalsector and concentration of economic power innonagricultural sector.


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*.Widespread povert% hen internationalpoverty line was calculated for G% per personper day (almost 4+H people in india wereliving below the poverty line in year %++*+?.

The new &nternational poverty line is set at$.%* a day in %++* PPP terms.


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'."igh (ate o& population )roth- &ndia hasthe second highest population and is in thestage of population explosion .

&ndia


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*.+o +evels o& Productivit%-&n &ndia(productivity levels are very low mainlybecause of:

;ess use of capital in the form of modernmachines and equipments ;ess efficiency in the wor1 force due to poor

health and poverty

;ow or1 culture due to lac1 of incentivesand discipline.


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,.+o (ates o& capital &ormation&n &ndia(rate of capital formation has not been steadyover the years it increased steadily duringthe first fifteen years of planneddevelopment but later it reduced due to:

a7 ;ow rate of saving

b7 #lower increase in private investment

c7 &nadequate )iscal measuresd7 &neffective resource mobili0ation


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. Predominance o& griculture-&n &ndia( agriculturecontributes $@.$ per cent to the -/P6at constant%++@+* prices7 in %+$$$%. &t provides employmentto around *4 per cent of the total labour force 6as

per ensus %+$$7.&t means that *4Hof labour forces that depends on

agriculture is generating $@.$H of -/P.

&n other words( the remaining @% percent of labour

force that is engaged in nonagriculturaloccupations is generating 4*.?Hof-/P

&t shows &ndia's underdeveloped nature because as acountry develops the percentage share ofagriculture in -/P must go down.


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Basic Characteristics of Indian Economy-2