Module 1 – An

Overview of Indian
Economy
 INTRODUCTION
• An economy is an area of the production, distribution, or trade, and consumption of goods and
services by individuals, businesses, organizations and governments.
•The ancient economy was mainly based on subsistence farming.
•During industrial revolution phase, economic growth took place mostly in mining, construction and
manufacturing industries. Commerce became more significant due to the need for improved
exchange and distribution of produce throughout the community.
•In the economies of modern consumer societies phase, there is a growing importance of
services, finance and technology—the knowledge economy.
•Economic Growth refers to the rise in the value of goods and services produced in the economy for a
particular period of time measured through indicators such as GDP, per capita income etc.
•Economic Development involves rise in the level of production in an economy along with the
advancement of technology, improvement in living standards and so on measured through indicators
such as life expectancy rate and literacy rate.
 INDIAN ECONOMY

•Economy of India is the fifth-largest in the world measured by nominal GDP and the third-
largest by purchasing power parity (PPP).
• Classified as a newly industrialised country, and one of the fastest growing G-20 major economies,
with an average growth rate of approximately 7% over the last two decades
• per capita GDP (nominal) with $2466
•India's consumer confidence index stood at 136 in the fourth quarter of 2016, topping the global list
of countries.
• 39th most competitive nation in the world -- out of 138 countries ranked in the global
competitiveness report of World Economic Forum 2016-17.
 THE STRUCTURE OF INDIAN
ECONOMY
I. OCCUPATIONAL STRUCTURE – Distribution of working population among different occupations or
productive activities
a) Primary sector – agriculture (food grains, non-food grains), fishing, plantations, mining.
b) Secondary sector – manufacturing industries (capital goods, consumption goods), construction
c) Tertiary sector – power, transport, communication, banking, services
INDUSTRIAL STRUCTURE
II. INDUSTRIAL STRUCTURE
a) Type of ownership – public sector, private sector, foreign sector
b) Size of investment – large-scale, small and medium scale
c) Type of output – basic industries, capital goods industries, intermediate goods industries,
consumer goods industries
 PILLARS OF ECONOMIC
DEVELOPMENT
Finance Nirmala Sitharaman in Budget 2022 announcement mentioned about nine pillars of
Indian economic development - In order to revive the coronavirus pandemic-hit Indian economy,
the FM sorted laid down six pillars namely - 1. Health and well-being 2. Physical and financial
capital and infrastructure 3. Inclusive development 4. Human capital 5.Innovation and Research
& Development (R&D) 6. Minimum government and maximum governance
 ROLE & CONTRIBUTION OF
AGRICULTURE
• Major contributor to Indian economy: Growth rate for the agriculture and allied sectors is estimated to be 4.1 to 5.1 per cent
• Source of food supply: Two major agricultural seasons are Kharif (April to September that witnesses paddy harvest) and Rabi
(October to March during which wheat is grown)
• Pre-requisite for raw material: supplier of essential commodities of industry such as jute, cotton, sugar, oil etc.
• Job creation: Accounts for approx 52% of jobs in India and contributes 18.1% to GDP
• Reduce inequality: Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood
• Source of foreign exchange: India is the largest producer, consumer and exporter of spices and spice products; ranks third in farm
and agriculture outputs; Second largest fruit producer in the world; Agricultural export constitutes 10 per cent of the country’s
exports and is the fourth-largest exported principal commodity. The agro industry in India is divided into several sub segments
such as canned, dairy, processed, frozen food to fisheries, meat, poultry, and food grains.
• Department of Agriculture and Cooperation under the Ministry of Agriculture is responsible for the development of the
agriculture sector in India. It manages several other bodies, such as the National Dairy Development Board (NDDB), to develop
other allied agricultural sectors.
• Contribution of Agriculture sector in Indian economy is much higher than world's average (6.1%).
 Problems of Indian agriculture
General Problems:
• Overcrowding in agriculture
• Discouraging rural atmosphere
• Inadequate non-farm services
Institutional problems :
• Lack of credit and marketing facilities
• Size of holdings
• Defective tenancy reforms
Technical Problems:
• Cropping Pattern
• Obsolete techniques of production
• Lack of irrigation
 Industry
Industrial Development Stages:
First Stage : Concerned with processing of primary products- Milling grain, extracting oil, tanning leather (sheep, goat, silkworm, cotton, jute) ,
Second Stage : Transformation of materials – Making bread and confectionary, footwear, and metal goods, cloth, furniture and paper.
Third Stage: Consists of machineries and other capital equipment to be used not for the direct satisfaction of any immediate want but in order to
facilitate the future process of production

Problems in industrial sector:

• Under-utilization of capacity

• Lack of Infra structural Facilities

• Poor performance of the Public Sector

• Gaps between Targets and Achievements

• Growth of Regional Imbalances

• Industrial Sickness

• Contribution of Industry lower than world's average 30.5%

 ROLE & CONTRIBUTION OF
INDUSTRY
• Important role in economic development: Contributes approx. 26% of GDP; DP of Industry sector is $495.62 billion . Lower
than world's average 30.5%. Includes mining & quarrying, manufacturing, electricity, gas, water supply, other utilities and
construction
• Improves standard of living: Employment to approx. 26% of workforce and development of human lives
• Modernization of agriculture: Manufacture of tractors, threshers, pump sets, harvesters, chemical fertilizers, pesticides,
processing tools and equipments necessary for agricultural development
• Development of science and technology: innovative products and processes, progress in atomic science, satellite and missile
development are possible through industrial development
• Capital formation: Investment of profits from industries leads to economic development
• Industrialization and urbanization: Establishment of educational institutions, access to transport, communication, healthcare
facilities, development of ancillary industries are results of industrialization
• Self-reliance in defence production: Eg: atomic tests, Agni missile, indigenous aircraft development through HAL, DRDO, BEML
etc. Make in India to boost defence production
• Importance in international trade: Foreign exchange through sale of iron and steel, textiles, petroleum products, chemicals,
jewellery, engineering goods etc.
ROLE & CONTRIBUTION OF
SERVICES
•Services sector accounts for 53.89% of total India's GVA of Rs. 137.51 lakh crore . Lower than
world's average 63.5% .
•Includes Trade, hotels, transport, communication and services related to, financial, real estate &
public administration, defence and other services.

•According to the data of the commerce ministry, the estimated value of services export in April-
December 2022 is USD 235.81 billion as compared to USD 184.65 billion in the year-ago period.
In 2021-22, these exports touched an all-time high of USD 254 billion
The rise in global uncertainty in the wake of the Russia-Ukraine conflict, FDI equity
inflows in the manufacturing sector in the first half of the current fiscal (April-
September) fell below their corresponding level in the first half of 2021-22,
A rebound in FDI inflows is, however, expected as the Indian economy sustains its high
growth while monetary tightening the world over eventually eases with the weakening of
inflationary pressures,
FDI equity inflows into India contracted by 14% to $26.9 billion during the April-
September this fiscal, according to the data of the Department for Promotion of Industry
and Internal Trade (DPIIT).
Total FDI inflows, which include equity inflows, re-invested earnings and other capital,
declined to $39 billion during the first six months of the current fiscal year as against
$42.86 billion in the year-ago period.
The government has implemented an investor-friendly FDI policy under
which FDI up to 100% is permitted through automatic route in most sectors,”
it said adding India continues to open up its sectors to global investors by
raising the investment limits, removing regulatory barriers, developing
infrastructure, and improving the business environment.
During the first half of this fiscal, Singapore emerged as the top investor. It
was followed by Mauritius, the U.A.E., the U.S.A., the Netherlands and
Japan.
IT/ ITES Sector in Services
• IT industry revenues (excluding hardware) is estimated to be at US$ 227 billion .
• The contribution of the IT sector to India’s GDP stood at 7.7 per cent .
• Infosys is the market leader, accounting for about 10.4 per cent of India’s total IT & ITES sector.
• The top 5 IT firms contribute over 25 per cent to the total industry revenue, indicating the market is
fairly competitive.
• The domestic revenue of the IT industry is estimated at US$ 49 billion and export revenue is
estimated at US$ 178 billion
• industry employs about 5 million workforces
• India is the topmost offshoring destination for IT companies across the world
• Social, Mobility, Analytics and Cloud (SMAC) are collectively expected to offer a US$ 1 trillion
opportunity.
Problems in Services
•Marketing Intangibles

•Maintaining Quality

•Developing Trust

•Competition

•Creating a need

•Lack of dedicated Staff

 PERFORMANCE, RECENT TRENDS AND
FUTURE SCENARIO OF SECTORS IN INDIAN
ECONOMY
State of the Economy 2022-23: Recovery Complete

• Recovering from pandemic-induced contraction, Russian-Ukraine conflict and inflation, Indian economy is
staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in
FY23.
• India's GDP growth is expected to remain robust in FY24. GDP forecast for FY24 to be in the range of 6-6.8
%.
• Private consumption is highest since, and this has led to a boost to production activity resulting in enhanced
capacity utilisation across sectors.
• The Capital Expenditure of Central Government and crowding in the private Capex led by strengthening of
the balance sheets of the Corporates is one of the growth driver of the Indian economy in the current year.
The credit growth to the MSME sector was over 30.6 per cent on average during Jan-Nov 2022.
•Retail inflation is back within RBI's target range in November 2022.
•Indian Rupee performed well compared to other Emerging Market Economies in Apr-
Dec2022.
•Direct Tax collections for the period April-November 2022 remain buoyant.
•Enhanced Employment generation seen in the declining urban unemployment rate
•Economic growth to be boosted from the expansion of public digital platforms and measures to
boost manufacturing output.
 PERFORMANCE, RECENT TRENDS AND FUTURE
SCENARIO OF SECTORS IN INDIAN ECONOMY –
Agriculture
• The performance of the agriculture and allied sector has been buoyant over the past several years, much of which is on account of the
measures taken by the government to augment crop and livestock productivity, ensure certainty of returns to the farmers through
price support, promote crop diversification, improve market infrastructure through the impetus provided for the setting up of farmer-
producer organizations and promotion of investment in infrastructure facilities through the Agriculture Infrastructure Fund.
• Private investment in agriculture increases to 9.3% in 2020-21.
• MSP for all mandated crops fixed at 1.5 times of all India weighted average cost of production since 2018.
• Institutional Credit to the Agricultural Sector continued to grow to 18.6 lakh crore in 2021-22
• Foodgrains production in India saw sustained increase and stood at 315.7 million tonnes in 2021-22.
• Free foodgrains to about 81.4 crore beneficiaries under the National Food Security Act for one year from January 1, 2023.
• About 11.3 crore farmers were covered under the Scheme in its April-July 2022-23 payment cycle.
• Rs 13,681 crores sanctioned for Post-Harvest Support and Community Farms under the Agriculture Infrastructure Fund.
• Online, Competitive, Transparent Bidding System with 1.74 crore farmers and 2.39 lakh traders put in place under the National
Agriculture Market (e-NAM) Scheme.
• Organic Farming being promoted through Farmer Producer Organizations (FPO) under the Paramparagat Krishi Vikas Yojana
(PKVY).
• India stands at the forefront to promote millets through the International Year of Millets initiative.
 Industry: Steady Recovery
• Overall Gross Value Added (GVA) by the Industrial Sector (for the first half of FY 22-23) rose 3.7 per cent, which is
higher than the average growth of 2.8 per cent achieved in the first half of the last decade.
• Robust growth in Private Final Consumption Expenditure, export stimulus during the first half of the year, increase in
investment demand triggered by enhanced public capex and strengthened bank and corporate balance sheets have
provided a demand stimulus to industrial growth.
• The supply response of the industry to the demand stimulus has been robust.
• PMI manufacturing has remained in the expansion zone for 18 months since July 2021
• Credit to Micro, Small and Medium Enterprises (MSMEs) has grown by an average of around 30% since
January 2022 and credit to large industry has been showing double-digit growth since October 2022.
• Electronics exports rise nearly threefold, from US $4.4 billion in FY19 to US $11.6 Billion in FY22.
• India has become the second-largest mobile phone manufacturer globally, with the production of handsets going
up from 6 crore units in FY15 to 29 crore units in FY21.
• Foreign Direct Investment (FDI) flows into the Pharma Industry has risen four times, from US $180 million in
FY19 to US $699 million in FY22.
• The Production Linked Incentive (PLI) schemes introduced across 14 categories, with an estimated capex of ₹4 lakh
crore over the next five years, to plug India into global supply chains. Investment of ₹47,500 crores has been seen
under the PLI schemes in the FY22, which is 106% of the designated target for the year. Production/sales worth ₹3.85
lakh crore and employment generation of 3.0 lakh have been recorded due to PLI schemes.
 Services: Source of Strength
•The services sector is expected to grow at 9.1% in FY23, as against 8.4% (YoY) in FY22.
•Robust expansion in PMI services, indicative of service sector activity, observed since July 2022.
•India was among the top ten services exporting countries in 2021, with its share in world commercial
services exports increasing from 3 per cent in 2015 to 4 per cent in 2021.
•India’s services exports remained resilient during the Covid-19 pandemic and amid geopolitical
uncertainties driven by higher demand for digital support, cloud services, and infrastructure modernization.
•Credit to services sector has grown by over 16% since July 2022.
•US$ 7.1 billion FDI equity inflows in services sector in FY22.
•Sustained growth in the real estate sector is taking housing sales to pre-pandemic levels, with a 50% rise
between 2021 and 2022.
•Hotel occupancy rate has improved from 30-32% in April 2021 to 68-70% in November 2022.
•Tourism sector is showing signs of revival, with foreign tourist arrivals in India in FY23 growing month-
on-month with resumption of scheduled international flights and easing of Covid-19 regulations.
•Digital platforms are transforming India’s financial services.