Indian economy 1

Unit I
Indian Economy
1. Meaning of Economy
2. Economic growth & development
3. Characteristics of India Economy
4. Concepts of Human development of
Indian Economy
5. Factors affecting economic
development.
Prepared by:-
Dr. Waqar Ahmad
Asstt. Professor
Allenhouse Business School

Indian Economy
India is a developing country and our
economy is a mixed economy where
the public sector co-exists with the
private sector.
For an overview of Indian Economy,
we should first go through the strengths
of Indian economy.

Indian Economy
• An economy is consist s of the economics
system of a country or other area. The labour,
capital and land recourses and the
manufacturing, trade, distribution and
consumption of goods and services of the area.
• An economy may also be described as a
spatially limited and social network where goods
and services according to demand and supply
between participants by barter or medium of
exchange with a credit or debit value accepted
within the network.

Economic Problem
According to Leftwitch;
Economic Problem is concerned with the use of
science among alternative human wants and in using
resources towards the end of satisfying wants as fully
as possible.
According to Milton Friedman,
An economic problem exist wherever scarce means
are used t o satisfy alternative ends. If means are not
scarce, there is no problem at all.

Causes of Economic Problem
1. Unlimited Wants
2. Limited or Scare Means
3. Alternative Uses

Economic Growth and Development
Economic growth and development can be defined as
process of sustained increase in real national income
over a long period of time.
1. (In regards with National Income)
According to Meier & Balwin,
Economic development is a process, where by an
economy’s real national income increase over a long
period of time.
2. (In regards with Per capita Income)
According to W.W. Rastow,
Economics growth is a relationship between the rates of
increase in capital and working force on one hand and in
population on the other, so that per capita output is rising

Characteristics of Economic Development
1. Continuous Process
2. Increase in National Income and Per capita Income
3. Increase in Standard of Living
4. Exploitation of National Resources

Stages of Economic Development by
W.W.Rastow
1. Traditional Stage
2. Stage of Precondition to take off or Pre take off Stage
3. Take off Stage
4. Stage of Drive to maturity
5. High mass consumption stage
6. Period of different stages of economic growth

Factors affecting Economic Development or
Determinants of Economics Development
Economics Factors
1. Population
2. Natural Resources
3. Technical Level
4. Capital Formation
5. Entrepreneurial and
Promotional ability
6. Economic Organisation
7. Government Policies
8. Economic system
9. Capital-Output Ratio
Non- Economics Factors
1. Social Factors
2. Political
3. Religious
4. International

Characteristics of Indian Economy
1. Indian Economy-
Underdeveloped:
a. Low Per Capita Income
b. Poor Infrastructure
c. Dependence on Imports
d. Illiteracy
e. Agricultural economy
f. Low Development of
Industries
2. Stagnant Economy
3. Semi-Feudal Economy
4. Depreciated Economy
5. Pre-dominance of
Agriculture
6. Underutilized Natural
Resources
7. Heavy Population
Pressure
8. Capital Deficiency

Concept of Human Development
The concept of human development
emerged in the late 1980s based on the
conceptual foundation provided by
Dr. Amartya Sen and Dr. Mahbub ul Haq.
The HD approach puts people at the centre
of the development agenda, where economic
growth and wealth are considered means to
development, not an end by itself.

• The quality of life people enjoy in a country, the
opportunities they have and freedoms they enjoy, are
important aspects of development.
• The concept of human development was
introduced by Dr. Mahbub-ul-haq.
• Dr. Haq has described human
development as development
that enlarges people’s choices
and improves their lives.
Concept of Human Development

GROWTH AND DEVELOPMENT
Both growth and development refer to changes over a period of
time.
 Growth :-
• Quantitative and value neutral change .
• Positive or a negative sign.
 Development :-
• Qualitative change which is always value positive.
• Development occurs when positive growth takes place.
• For example, if the population of a city grows from one lakh
to two lakhs over a period of time, we say the city has
grown.
• However, if facilities like housing, provision of basic services
and other characteristics remain the same, then this growth
has not been accompanied by development.

• Access to resources, health and education are the key areas
in human development.
GROWTH AND DEVELOPMENT

FOUR PILLARS OF HUMAN DEVELOPEMNT
• Just as any building is supported by pillars, the idea of human
development is supported by the concepts of equity,
sustainability, productivity and empowerment.
• Equity refers to making equal access to opportunities available
to everybody.
• Sustainability means continuity in the availability of
opportunities.
• Productivity here means human labour productivity or
productivity in terms of human work.
• Empowerment means to have the power to make choices.

WHAT IS HDI ?
 It is a tool used to measure a country's overall
achievement in its social and economic dimensions.
 Definition:-
The human development index (HDI) is a
composite statistic of life expectancy, education, and per
capita income indicators, which is used to rank countries
into four tiers of human development.
 The human development index is a measure of
economic development and economic welfare.

ORIGIN OF HDI
• Devised and launched by Pakistani economist Mahbub-ul- haq in
1990.
• Amartya Sen and Mahbub –ul- haq worked upon the capabilities
and functioning which provided conceptual framework.
• Published by United Nations Development Programme (UNDP).
MAHBUB –UL- HAQ AMARTYA SEN

• The human development index examines three important
criteria of economic development
1) Life expectancy
2) Education
3) Income levels
• Create an overall score between 0 and 1.
• 1 - indicates a high level of economic development.
• 0- a very low level.

MEASURING HUMAN DEVELOPMENT
• The human development index (HDI) ranks the
countries based on their performance in the key
areas of health, education and access to resources.
 Health :-
• The indicator chosen to assess health is the life
expectancy at birth.
• A higher life expectancy means that people have a
greater chance of living longer and healthier lives.

 Education :-
• The adult literacy rate and the gross enrolment ratio represent
access to knowledge.
• The number of adults who are able to read and write and the
number of children enrolled in schools show how easy or difficult
it is to access knowledge in a particular country.
 Access to resources is measured in terms of purchasing
power (in U.S. Dollars).
MEASURING HUMAN DEVELOPMENT

Example : Calculating HDI of India.
• Life expectancy index = 0.679
• Education index = 0.495
• Income index = 0.599
• HDI = (LI * EI * II)^1/3
• HDI = (0.679 * 0.495 * 0.599)^1/3
= 0.586

INTERNATIONAL COMPARISONS
• Often smaller countries have done better than larger
ones in human development.
• Similarly, relatively poorer nations have been ranked
higher than richer neighbours in terms of human
development.
• For example, Sri Lanka, Trinidad and Tobago have a
higher rank than India in the human development
index despite having smaller economies.
• Similarly, within India, Kerala performs much better
than Punjab and Gujarat in human development
despite having lower per capita income.

• Ranking base:- Globally countries are divided in
the following four classes according to their
score in human development index –

GLOBAL HDI RANKINGS-
TOP TEN COUNTRIES
RANK COUNTRIES HDI
1 NORWAY 0.944
2 AUSTRALIA 0.933
3 SWITZERLAND 0.917
4 NETHERLANDS 0.915
5 UNITED STATES 0.914
6 GERMANY 0.911
7 NEW ZELAND 0.910
8 CANADA 0.902
9 SINGAPORE 0.901
10 DENMARK 0.900

LOWEST TEN COUNTRIES IN HDI
RANK COUNTRIES HDI
178 MOZAMBIQUE 0.393
179 GUINEA 0.392
180 BURUNDI 0.389
181 BURKINA FASO 0.388
182 ERITERIA 0.381
183 SIERRA LEONE 0.374
184 CHAD 0.372
185 CENTRAL AFRICAN REPUBLIC 0.341
186 CONGO 0.338
187 NIGER 0.337

HDI ASPECTS OF INDIA
• India ranks (2014) – 135
• HDI – 0.586
• Gain of 0.003 HDI from previous year .
• Comes under medium human development countries.
• Indicators: -
 Life expectancy at birth(by UN).
Overall – 64.19 years(Rank 147).
male – 62.80 years.
Female – 65.73 years.
 Education index : 0.473 .
 Mean years of schooling : 5.1(rank 65).
 GNI(Gross National Income)per capita at PPP : $5350
(rank 127) .

HDI PROGRAMME IN INDIA
 Unique in it’s kind.
 Preparation of not only national report, but also sub-national
human development reports (HDR).
 Decentralized and integrated the human development concept
into its development agenda at national, state, as well as district
level .
 More HDRs have been produced in India than the total number
of global HDRs.
 Plan is made by the Planning Commission –United Nations
Development Programme(UNDP) partnership through the
preparation of State Human Development Reports (SHDR) and
District Human Development Reports (DHDR).

 Human development programme started in 8th five year
plan(1992-1997).
 First state - Madhya Pradesh.
 The world’s first state HDR was published in Madhya Pradesh in
1995 .
 Computation of the state’s HDI as well as HDI for all the districts in
the state made by state govt.
 So far 21 states have prepared HDRs.
 State governments have initiated the work on district HDRs for 80
districts of which 23 HDRs have been released till date,
 2009 -The first city HDR (Mumbai) was launched.

HDI of different states in India
HDI-STATE WISE

LIFE EXPECTANCY STATEWISE
State Life expectancy(YEARS)
Kerala 74.0
Punjab 69.4
Maharashtra 67.2
Jharkhand , Chhattisgarh , Madhya
Pradesh
58.0

KERALA – THE HIGHEST HDI STATE
• HDI - 0.764
• LITERACY RATE – 93.91 %
• LIFE EXPECTANCY – 74 years.
• HIGHEST SEX RATIO – 1084/1000 .
• LEAST CORRUPTED STATE.
• CLEANEST AND HEALTHIEST STATE .

IMPORTANCE OF HDI
 The HDI gives an overall index of economic development.
 It does give a rough ability to make comparisons on issues of
economic welfare – much more than just using GDP statistics show.
 It gives idea regarding areas of development which requires
improvement.
 Statistics gives better decision making for areas having wide
disparity.
 More focus on social & human development rather than only
capital accumulation and growth.

LIMITATIONS OF HDI
 Wide divergence within countries. For
example, countries like China and Kenya have
widely different HDI scores depending on the
region in question. (e.g. :- North china poorer
than south east).
 Economic welfare depends on several other
factors, such as – threat of war, levels of
pollution, access to clean drinking water etc.
 GNI does not show how the income is spent
by the government. Some countries spend
more on military than on healthcare.

 When knowledge is measured it only takes into account
what children learn at school not in the family. And so maybe
knowledge statistics may be distorted if the family play more
of a role in education in the home.
 Longevity can also be distorted as the life expectancy of a
person does not consider how healthy the life was led.
 Life expectancy value for a country is the given is an
average of the total population. There are many communities
in the country that will not all have access to good healthcare
services and so there will be variations of life expectancy
values.

WHY INDIA IS LAGGING IN HDI ??
• Large number of population in India lives in slums
that is around 158 .4 million.
• 42 % children below 5 years age are underweight and
59 % stunted.
• Low spending on education by the government.
• Lack of schemes for urban poor like NRHM etc.
• India treats its environment poorly . Ranks 125 out
of 132 countries in a study done by Yale university.

CONCLUSION
The HDI gives an overall index of economic
development.
There are certain differences among different
states development conditions so there must
be equal opportunities for development for
all.
Some important issues are missing in HDI such
as infrastructure and some economic factors.

Indian economy 1

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