Characteristics of Indian Economy | Famous Books for UPSC Exam (Summary & Tests) PDF Download

Characteristics of a Developing Economy

Before we explore the specifics of the Indian Economy, let's first grasp the characteristic features commonly associated with developing economies:

• Low Per Capita Real Income: A developing economy often exhibits a low per capita real income, representing the average purchasing power of its citizens. In India's case, this income disparity is prevalent, with a significant gap between the real incomes of billionaires and daily wage laborers.
• High Rate of Population Growth: India bears witness to a remarkably high rate of population growth, making it the second-most populous country globally, after China. Providing adequate infrastructure and resources to sustain such a vast population is a formidable challenge for the nation.
• High Rate of Unemployment: Unemployment remains a pressing issue in developing economies like India. The lack of employment opportunities leaves many individuals and families struggling to meet their basic needs, perpetuating the cycle of poverty.
• Dependence on the Primary Sector: In the absence of well-developed industries, individuals often resort to primary sector jobs, such as agriculture. While these activities are vital, they do not significantly contribute to economic growth, leading to a slow-paced development process.
• Vicious Circle of Poverty: The vicious circle of poverty manifests itself in developing economies, forming a self-reinforcing cycle. Low purchasing power leads to reduced demand for goods and services, resulting in low investment and income levels, further exacerbating poverty.

Nature and Characteristics of the Indian Economy

Now that we have a clear understanding of the general traits of developing economies, let's analyse how these characteristics apply to India:

Low Per Capita Real Income

• India’s per capita real income remains relatively low, estimated at approximately ₹1.50 lakh (around USD 1,800) for the fiscal year 2023-24, based on recent economic surveys. 
• This figure masks significant income disparities, with a stark contrast between the wealth of urban elites and the limited earnings of rural workers and daily wage labourers, reflecting uneven purchasing power across the population.

High Population Growth and Resource Challenges

• With a population of approximately 1.43 billion as of 2024, India has surpassed China to become the world’s most populous country. 
• This high population growth rate—approximately 0.8% annually—poses significant challenges in providing adequate infrastructure, healthcare, and resources, straining economic development efforts.

High Unemployment and Underemployment

• The Indian economy faces persistent challenges with unemployment, underemployment, and disguised unemployment. 
• As of 2024, the unemployment rate hovers around 7.5%, with rural areas particularly affected. 
• Limited opportunities in the secondary (manufacturing) and tertiary (services) sectors push many workers into low-productivity primary sector jobs, such as agriculture, which employs nearly 45% of the workforce but contributes only about 15% to GDP.

Dependence on the Primary Sector

• The economy’s heavy reliance on agriculture and other primary sector activities limits its growth potential. 
• Despite progress in industrialisation, the primary sector remains a fallback for many due to the underdeveloped industrial and service sectors, slowing overall economic development.

Vicious Circle of Poverty

• India’s economy is trapped in a self-reinforcing cycle of poverty. 
• Low per capita income reduces purchasing power, leading to decreased demand for goods and services. 
• This, in turn, discourages investment, perpetuating low income levels and poverty, particularly in rural areas where access to education and employment opportunities is limited.