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The level of economy has lot of implications for business- ithas significant bearing on the nature and size demand,government policies affecting business etc.

Countries and even different regions within a country , show

great differences in the level and pattern of economicdevelopment.

Classification of the economies is on the basis of per capita

income(i.e. average annual income per person). According tothis, the countries are broadly classified as low income,middle income and high income economies.

The World Bank classifies countries into four income groups: -

Nature of economy

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Low Income Economies – are economies with very low levelof per capita income. All economies with per capita have

GNI(gross national income- new term for GNP) per capita of US$975 or less in 2009 and $875 or less in 2005 areregarded as low income economies. There were 54 lowincome economies in 2005. for example –

Afghanistan, Bangladesh, Cambodia, Central African Republic,India, Kenya, Madagascar , Nepal ,North Korea , Pakistan,Somalia, Sudan , Zealand, Oman, Singapore, South Korea,Spain, Sweden, Switzerland, Taiwan, United Kingdom,

United States

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High Income economies – are countries with very richincome per capita. A high-income economy is defined bythe World Bank as a country with a Gross National Income per capita of $11,905 or more in 2009. In 2005 there were 57high income economies. There are mainly two categories of high income economies – industrial economies and oil

exporters. Fo eq-

Australia, Austria, Belgium , Canada, Denmark , France,Germany , Greece , Hongkong , Hungary, Iceland, Ireland,

Israel, Italy, Japan, Kuwait, Macau, Netherlands, New

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Middle Income Economies – in between low and highincome economies there exist middle income economies. In2005 , there were 98 middle income economies.

It is further subdivided into –

•lower middle income (Lower middle income countries haveGNI per capita of US$976–$3,855. in 2009) for example –

Albania , Algeria ,Bhutan, China, Colombia ,Egypt, Georgia,Iran, Iraq, Peru, Philippines ,Sri Lanka, Thailand and manymore and•upper middle income (GNI per capita between US$3,856–$11,905 in 2009) economies for eq- Argentina, Brazil, Chile,Hungary, Kazakhstan, Libya, Malaysia, Mauritius, Mexico,Oman Russian Federation , Serbia , South Africa , Turkey,Venezuela 

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Developing country

The development of a country is measured with statistical indexes such

as income per capita (per person) (GDP), life expectancy, the rate of literacy, et cetera. The UN has developed the HDI, a compound indicator of the above statistics, to gauge the level of human development for countries where data is available.Developing countries are in general countries which have not achieved a

significant degree of industrialization relative to their populations, andwhich have, in most cases a medium to low standard of living. There is astrong correlation between low income and high population growth.The terms utilized when discussing developing countries refer to theintent and to the constructs of those who utilize these terms. Other terms

sometimes used are less developed countries (LDCs), least economicallydeveloped countries (LEDCs), "underdeveloped nations" or Third World nations, and "non-industrialized nations". Conversely, the opposite end of the spectrum is termed developed countries,most economically developed countries (MEDCs), First World nationsand "industrialized nations".

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Developed country

The term developed country is used to describe countries that

have a high level of development according to some criteria. Whichcriteria, and which countries are classified as being developed, is acontentious issue and is surrounded by fierce debate. Economiccriteria have tended to dominate discussions. One such criterion isincome per capita; countries with high gross domestic product 

(GDP) per capita would thus be described as developed countries.Another economic criterion is industrialization; countries in which thetertiary and quaternary sectors of industry dominate would thus bedescribed as developed. More recently another measure, theHuman Development Index (HDI), which combines an economicmeasure, national income, with other measures, indices for lifeexpectancy and education has become prominent. This criterionwould define developed countries as those with a very high (HDI)rating. However, many anomalies exist when determining

"developed" status by whichever measure is used 

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Classification by income does not necessarily reflectdevelopment status. The group of the high income economies,the industrial economies are developed economies; all the oil

exporters are not developed economies (for eq: Kuwait andUAE, though high income economies, are regarded asdeveloping economies). Besides income, some other criteriasuch as sectoral distribution of the income and employment

generation, social development indicators etc. are applied toconsider whether an economy is a developed or developingone.Besides the income and social dimensions, there are a number of common characteristics of developed economies.

They are –

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•Use of modern and sophisticated technology•Continuous innovations

•Fast diffusion of new ideas and technologies•Low share of the primary sector (mainly agriculture)•Dominance of the tertiary (service sector) and secondary(mostly manufacturing) sector in the income and

employment generation•Market friendly economic policies•Open trade and investment policies•Democratic rights•Competition•And consume choice etc.

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Less Developed (LDC) & More

Developed countries(MDC)Some times the term less developed countries(LDC) and moredeveloped countries(MDC) are used to refer to the developing andeveloped countries. The use of the term underdeveloped to refer to the developing countries is also common.

Low income is just an indication of deprivation people in developingcountries. Low income prevents access to even basic necessities,not only better and modern amenities.

In the developing economies the inequality in the distribution of income is very high and as a result a large proportion of populationlives under the poverty line. Many countries have achievedconsiderable reduction in poverty. They are generally characterise

by high birth rate and population growth rates. Death rate is alsohi her than in develo ed countries

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Differences Between Developed &

Developing CountriesBirth Rates

Developing countries have high birth rates because

•Many parents will have a lot of children in the expectation thatsome will die because of the high infant mortality rate•Large families can help in looking after the farm•The children will be able to look after their parents if theybecome old or sick; there may not be a old age pension scheme

•There may be a shortage of family planning facilities and advice

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This scattergraph shows that a country with a high infantmortality (many children dieing young) will tend to havea higher birth rate.

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Developed countries have low birth rates because 

•It is expensive to look after large families

•More women prefer to concentrate on their careers•There is a good family planning advice

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Natural Increase

Developing countries have high rates of natural increase astheir birth rates are high, and although their death rates arealso high there is usually a big gap between the two figures.Malawi's natural increase is 30 per year for every 1,000

people. This is calculated from the birth rate of 51 minus thedeath rate of 21 (51 - 21 = 30).

Developed countries have both a low death rate and low birthrate, with only a small gap between the two. Norway's naturalincrease is 3 per year for every 1,000 (14 - 10 = 3).Countries that have a high rate of natural increase will have ashort population doubling time.

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Infant Mortality

The infant mortality rates are higher in developing countries.

The reasons for these higher rates are that developingcountries often have

•A shortage of medical services

•A greater number of children born to mothers•Poor nutrition of mothers and babies•Less knowledge of health matters•Dirty water supplies

The chances of surviving to your fifth birthday depend onwhere you are born in the world

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Developing countries are also characterised by the prevalence of rudimentary and traditional methods and obsolete technology

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Developing countries are also characterised by the prevalence of rudimentary and traditional methods and obsolete technology.

Some New Economies

Within the category of low income economies for example , aspecial category is also identified which is called as leastdeveloped economies. Most of the least developed economies

suffer from one or more of the following constraints : a ery lowGNP per capita or exposure to the natural diaster.

Within the category of developing economies there are somecountries which have been experiencing rapid industrialization ,such as Hong Kong , South Korea, Singapore and Taiwan. Theyare sometimes referred as newly industrialising economies.

These countries show a very high growth rate and alsopresenting very impressive export performance.

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So income is not only the criteria to consider a countrydeveloped. There is some important difference betweeneconomic growth and development. An increase in income isan indication of economic growth but economic developmenthas some qualitative dimensions also such as distribution of income, standard of living, composition of output, character of working conditions and overall imporovement in economic

welfare.

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SECTORS OF THE INDAN ECONOMY

•Primary Sector •Secondary Sector •Tertiary Sector 

P i S t

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Primary Sector 

When the economic activity depends mainly on exploitationof natural resources then that activity comes under theprimary sector. Agriculture and agriculture related activitiesare the primary sectors of economy.

Secondary Sector 

When the main activity involves manufacturing then it is thesecondary sector. All industrial production where physicalgoods are produced come under the secondary sector.

Tertiary Sector 

When the activity involves providing intangible goods likeservices then this is part of the tertiary sector. Financialservices, management consultancy, telephony and IT aregood examples of service sector.

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Evolution of an Economy from Primary Sector Based to

Tertiary Sector Based

During early civilization all economic activity was in primarysector. When the food production became surplus people’s needfor other products increased. This led to the development of secondary sector. The growth of secondary sector spread its

influence during industrial revolution in nineteenth century.

After growth of economic activity a support system was the needto facilitate the industrial activity. Certain sectors like transportand finance play an important role in supporting the industrialactivity. Moreover, more shops were needed to provide goods inpeople’s neighbourhood.

Ultimately, other services like tuition, administrative support

developed.

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Interdependency of Sectors:To understand this interdependency, let us take an example of acold drink. A cold drink contains water, sugar and artificial flavor.

Suppose if there is no sugarcane production then procuringsugar will become difficult and costly for the cold drinkmanufacturer. Now to transport sugarcane to sugar mills andsugar to the cold drink plant needs the services of a transporter.

A person or system of persons is requiredto maintain and monitor all these movements of goods from farmto factory to shop in different locations. That is where role of administrative staffs comes. Let us go back to the farmer. Healso needs fertilizers and seeds which is processed in somefactory and which will be delivered to his doorstep by somemeans of transportation.To top it all at every step of these activities we require the proper monetary and banking system. So, in a nutshell this describes

how interrelated all sectors of an economy are.

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Other Classifications of Economy

Organised Sector 

The sector which carries out all activity through a system andfollows the law of the land is called organized sector. Moreover,labor rights are given due respect and wages are as per thenorms of the country and those of the industry. Labour workingorganized sector get the benefit of social security net as framedby the Government.

Certain benefits like provident fund, leave entitlement, medical

benefits and insurance are provided to workers in the organizedsector. These security provisions are necessary to provide sourceof sustenance in case of disability or death of the mainbreadwinner of the family. Otherwise the dependents

will face a bleak future.

U i d S t

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Unorganised Sector:

The sector which evade most of the laws and don’t follow thesystem come under unorganized sector. Small shopkeepers,some small scale manufacturing units keep all their attention on

profit making and ignore their workers basic rights. Workersdon’t get adequate salary and other benefits like leave, healthbenefits and insurance are beyond the imagination of peopleworking in unorganized sectors.

Public Sector Companies which are run and financed by the Governmentcomprise the public sector. After independence India was a verypoor country. India needed huge amount of money to set upmanufacturing plants for basic items like iron and steel,aluminium, fertilizers and cements. Additionally infrastructure likeroads, railways, ports and airports also require huge investment.In those days Indian entrepreneur was not cash rich sogovernment had to start creating big public sector enterprises

like SAIL (Steel Authority of India Limited), ONGC(Oil & Natural

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Private Sector 

Companies which are run and financed by private people

comprise the private sector. Companies like Hero Honda, Tataare from private sectors.

Government Aided Schemes to Fight Unemployment

Government, from time to time, announces and implementsvarious employment scheme to fight unemployment or hiddenemployment to help the weaker section of society. Shcemeslike NREG (National Rural Employment Guarantee) is the

latest announced by the UPA government in 2004. Thisprogramme guarantees a minimum of 100 days of employmentto at least one person from every rural household. This ispart of government’s effort to ensure the ‘Right to Work’ to the

rural poor citizen.

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Indian Economic Structure:

Indian Industry Sectors & Industries

Agriculture(primary sector)

More than 52% of country's population depends on agriculture, asector contributing only 17.5% of the GDP. Food grain production in2009/10 is expected at 216.9mt, which is 17.6mt lower than theoutput in 2008/09. While looking at some of the agricultural

products, one finds that India is the largest producer of tea, jute andute like fiber. India is not only the largest producer but also thelargest consumer of tea in the world. India accounts for more than15% of the global tea trade. Indian tea is exported in various forms,such as tea bags and instant tea, to more than 80 countries of the

orld. The total milk production in India is the highest in the world.India also has the largest irrigated land area in the world. India isplaced third in the world in cereal production, with the secondlargest production capacity for wheat and rice, and the largest

production capacity for pulses.

Industry

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Industry

Index of industrial production, which measures the overallindustrial growth rate, stood at 5.2% in 2009 and is expected at

7.5% in 2010. The textile industry is the largest industry in terms of employment and is expected to generate $85 billion by 2010 and

create 12 million new jobs in the sector, and also pave the wayfor modernization & consolidation in order to create a globallycompetitive textile industry. The automobile sector has demonstrated the inherent strengthsof Indian labor and capital. The pharma and IT industries are thesectors that have performed exceedingly well in recent years for India. Among the sectors that have experienced the greatesttransformation in India, the pharmaceutical sector is the most

significant.

Services

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Services

The services sector has maintained a steady growth pattern since1996-97, except for the fall in 2000-01. Trade hotels, transport &communications have witnessed growth, followed by financial

services. The services sector accounted for 62.6% of India’s totalGDP in 2009.While in most parts of the developed world, the services sector's

share of employment rose faster than its share of output, India

witnessed a relatively slow growth of jobs in the service sector.This is primarily because of the rise in labor productivity in sectorssuch as information technology, which is dependent on skilledlabor. Growth in tourism and tourism-related services, such ashotels, holds a large potential for employment generation.IT enabled services, such as Business Process Outsourcing,

have grown rapidly in the recent past and will continue to rise.India's large English speaking skilled work force has made thenation a major exporter of software services and skilled

manpower.

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Economic Polices