nature of india economy

8/2/2019 Nature of India Economy

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Classifications of the economies of the world (Thecountries have been selected according to their 2009GNI per capita)

Low Income Economies (with $995 or less)

Nepal, Pakistan, Bangladesh

Lower Middle Income Economies (With $996-3,945)

Bulgaria, Brazil, India, Sri Lanka,, Iran Upper Middle Income Economies (With $3,946-

12,195)

Hungry, Argentina, Mauritius

High Income Economies (With $12,196 or More) : United States, Switzerland, Canada

1CREATED BY RAJNI KAPOOR


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Characteristics of the IndianEconomy


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India

An underdeveloped economy

A developing economy

A mixed economy



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Low per capita income

According to World Bank data 2009,India was one of the 45 low income

economies of the world. In India 2009- GDP is 1,296,085 US million

dollar.

In USA GDP of the year 2009 is 14,256,300

million dollar.



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Inadequate distribution of income:

The distribution of income and wealthin India is inequitable.

Lowest 40% accounted for 19.7% of theaggregate household expenditure inIndia.

Top 20% accounted for 46%.

Middle 40% have 34.3% contribution inaggregate household expenditure.



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Measurement of income distribution:

Lorenz curve

Gini coefficient



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Measurements of Income Distribution

Lorenz Curve:

A curve showing the proportion ofnational income earned by a givenpercentage of the population.

e.g what proportion of national incomeis earned by the top 10% of the

population?



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Lorenz Curve: the line ofequality

%o

fNationalIncome

Percentage of Population

This line representsthe situation ifincome wasdistributed equally.The poorest 10%would earn 10% ofnational income, thepoorest 30% wouldearn 30% of national

income.

10%

10%

30%

30%



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Lorenz Curve

%o

fNationalIncome


The Lorenz Curve willshow the extent towhich equality exists.The greater the gapbetween the line ofequality and thecurve the greater thedegree of inequality.

30%

20%

In this example,the poorest30% of thepopulation earn20% of thenational income.

7%

In this secondexample, the Lorenzcurve lies furtherbelow the line ofequality. Now, thepoorest 30% onlyearn 7% of thenational income inunderdeveloped

countries.



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Gini Coefficient

Enables more precise comparison ofLorenz Curves

The proportion of the area taken up bythe Lorenz Curve in relation to theoverall area under the line of equality.



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Gini Coefficient% of National Income


The total area underthe line of equalityThe area boundedby the Lorenz Curve



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In India

Gini Lorenz Ratio:

In 1994 = 0.297

In 1997 = 0.37

In 2004 = 0.40



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Low level of human development

Human development is usually measured in termsof human development index (HDI), which iscomposed of 3 basic indicators-longevity,knowledge and standard of living

Longevity is measured by life expectancy atbirth;

knowledge by a combination of adult literacy(2/3rd) and combined primary, secondary and

tertiary ratios (1/3rd) and standard of living is measured by GDP per

capita (PPP)



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HDI value

India: 0.61

Japan : 0.94

U.S.A. : 0.945 Malaysia : 0.805



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Predominance of Agriculture

In 1951 around 69.7% of the workingpopulation was employed inagriculture.

In 1991, it was around 66.9%

In 2001, it was 56.9%.

Thus agriculture and allied activitiesremain the biggest employer in India.



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Contribution in GDP in 2005 (%)

country Agriculture Industry Services

France 2 22 76

Germany 1 29 70Mexico 4 26 70

China 13 46 41

India 19 28 54



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Rapid Population growth

In 1961 population was 439 million

In 2001 it was 1,025 million

It increased as the rate of 2.14 percent per

annum. Presently it is 1.6% percent per annum

It has a share of 17% (approx) in the world

population but accounts for only 1.5 %(approx) of the world GDP.



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Population growth is slowing

1.0

2.22.1

1.8

1.5

0

0.5

1.0

1.5

2.0

2.5

1901-1950 1951-1980 1981-1990 1991-2000 2001-2010

(%)



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High incidence of poverty

In 1979-80 poverty was estimated 50.7% inthe rural areas and 40.3% in the urban areas.

Population Dependency Ratio = Ratio of Population aged

65 years or over to the population aged 15-64.



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Poverty is declining

46

26

16

1% of the people havebeen crossing povertyline each year for 25

years

Equals ~ 200m

0

10

20

30

40

50

1980 2000 2010 (proj)

(%)



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Scarcity of capital

Capital formation: a stock of capitalwhich is used further to increaseproduction. i.e. Investment.

Capital-output ration increases.

A unit of capital used to increase a unit ofoutput.

Gross saving and investment rates fall.



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Saving, investment and capitalformation:

In 1950-51 the gross saving rate wasaround 8.9%.

In 1970-71 gross saving rate was 14.6 and

capital formation was 15.4%. In 1990-91, the rates were 23.1 and 26.3%

respectively.

In 2005-06, the rates stood at 32.4 percentand 33.8 percent respectively.



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India a developing economy

Economic developed has two aspects:

Quantitative changes

National Income: GDP growth trend Size of Export

Structural changes

Service sector: high service sector growth



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GDP Growth Trend

0

1

2

3

4

5

6

7

8

9

1995 1996 1997 1998 1999 2000 2001

GDPGrowth(%)

India

World

PPP GDP about US $2 trillion, fourth highest in the world



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CREATED BY RAJNI KAPOOR 26

Gross Domestic Product (GDP), PPP is gross domesticproduct converted to international dollars usingPurchasing Power Parity (PPP) rates. An international

dollar has the same purchasing power in a given country as aUnited States Dollar in the United States. In other words, itbuys an equivalent amount of goods or services in thatcountry. Data has not been adjusted to a constant year.


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10

yearGDPgro

wth%

8.6

6.2

5.0 5.0 4.8 4.64.2

3.53.1

2.8

0

1

2

3

4

5

6

7

8

9

10

China

Malaysia

India

Singapore

Korea

Taiwan

Thailand

Philippines

HongKong

Indonesia

10 year GDP growth %



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Rising GDP growth

1.0

3.5

6.0

8.0

Average annual GDP growth

0

2

4

6

8

10

1900-1950 1950-1980 1980-2002 2002-2006

(%)



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Per capita income gains

Source: World Bank

US$ ppp

20053,051

1980

1,178



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0

50

100

150

200

250

300

350400

450

500

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY

02(E)

Exports Domestic

Size of Indian Software Industry (in Rs.bn)

FY02 (in Rs. Bn):Exports 369Dom. Market 116

FY02 Growth Rate:

Exports 30%Dom. Market 18%



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-

5,000

10,000

15,000

20,000

25,00030,000

35,000

40,000

45,000

50,000

China US In

dia

Japan

Brazil

Russia UK

Germ

any

Fran

ceItaly

US2003$billions

India will be the 3rd largest economy.

Future Prospects of India in 2050:



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..with the highest growth rateof BRICs

0

1

2

3

4

5

6

7

8

2005-10 2015-20 2025-30 2035-40 2045-505-YearPeriodAveragePercentPer

Annum Brazil

China

India

Russia



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India- a mixed Economy

Mixed economy is a term used todescribe an economic system, wheresome important production is

undertaken by the state, directly orthrough its nationalized industries, andsome is left for private enterprise.

It is also defined as "an economy

containing the characteristics of bothcapitalism and socialism, that is, acombination of private and publicownership of



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Contd.

The means of production, with somemeasure of control by the centralgovernment".

It is a type of economy in which privateand public sectors co-exist and try toretain the advantages of capitalism andsocialism while trying to eliminate theevils of both the systems.


nature of india economy

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