Introduction
India is a growing country with a mixed economy. The characteristics of the Indian economy include a large population, many people living below the poverty line, poor infrastructure, a focus on agriculture, slow capital growth, and low income per person. Since Independence, India has made progress in many areas. While it is still developing, the country is slowly moving towards becoming developed. A major change happened in 1991 when important economic reforms were introduced, helping the economy grow.
Basic Characteristics of Indian Economy
The Indian economy is a developing economy, and this is owed to the fact that there are extremely high levels of poverty, unemployment, illiteracy, etc. in India. With a suddenly diminishing Gross Domestic Product (GDP) to add to the various problems faced by the Indian economy, there are a lot of factors that contribute to the nature and characteristics of the Indian economy being a developing economy. Let’s understand the characteristic features of developing economies and then understand how these features apply to the Indian economic realm
So let’s understand What are the Characteristics of the Indian Economy.
Main Characteristics of Indian Economy
The Indian economy is still developing, mainly due to issues like illiteracy, unemployment, and poverty. Along with these problems, a declining Gross Domestic Product (GDP) adds to the challenges faced by the economy. Several factors contribute to the characteristics of India being a developing economy.
Low Per Capita Real Income
Real income refers to the purchasing power of a country in a year, while per capita income is the average purchasing power of an individual. Developing nations, including India, have low per capita income.
High Population Growth
India's large population requires proper education, healthcare, and job opportunities. However, providing these facilities for everyone is a huge challenge, leaving the economy in a developing state.
Poverty Cycle
Poverty creates problems on both the supply and demand sides. On the supply side, products and services remain unsold, leading to a lack of investment and low per capita income. On the demand side, low income reduces purchasing power, making goods and services unaffordable. This cycle keeps developing economies trapped.
Nature and Characteristics of Indian Economy
Let’s take a look at how so with the basic characteristics of the Indian economy condensed into the following pointers:
High Level of Population Growth
The population of India as last recorded in the year 2020 is 138 crores (1.38 billion) people and still increasing, putting it only second highest in the world after China. With the world population nearing only 8 billion people, India’s share of the same is a whopping 17 per cent.
Perceived (Low) Per Capita Real Income
Fairly recent statistics of India’s income puts the country’s per capita real income at Rs 1.35 lakh for the year 2019-20. Do realise that the average real incomes of Indian billionaires, as well as those of daily wage labourers, are all averaged here, thus the ballpark figure of 1.35 lakh rupees is not all that accurate.
Prevalence of Unemployment, Underemployment and Disguised Unemployment
The prevalence of unemployment and its cousins - underemployment and disguised unemployment are incredibly harmful to the economy. With a huge population with barely any appropriate work available, things have the potential to go very south. This can be attributed to dependence on the primary sector due to the underdevelopment of the tertiary and secondary sectors of the economy. The same factors shove the economy way down into the trenches of the vicious circle of poverty and leave it there.
Key Features of the Indian Economy
Agriculture-Based Economy
India's economy relies heavily on agriculture. Farming and related activities contribute about 14.2% to the GDP, and nearly 53% of the population depends on the agricultural sector for their livelihood.
Overpopulation
Overpopulation is a major issue in India. The population grows by around 20% every decade. Currently, India holds about 17.5% of the world’s total population, creating challenges for resources and infrastructure.
Income Inequality
Income distribution in India is highly uneven. According to recent data, 1% of the population owns 53% of the country’s wealth, and the top 10% hold over 76%. Meanwhile, the remaining 90% of the population owns less than 25% of the total wealth.
Low Capital Growth
Low-income levels have slowed the growth of capital in the country. Gross Domestic Capital has seen a sharp decline in recent years compared to previous levels.
Poor Infrastructure
A large part of India still lacks basic facilities. About 25% of households have no access to electricity, 97 million people lack clean drinking water, and around 840 million people do not have proper sanitation. Addressing these issues requires significant investment.
Inefficient Markets
Markets in India often function inefficiently due to poor mobility of goods and resources. This leads to improper utilisation of resources and frequent price fluctuations.
Poverty Cycle
India faces a poverty trap, often described as "a country is poor because it is poor." Low income reduces the purchasing power of people, making goods and services unaffordable. This cycle continues, keeping the economy in a developing phase.
Outdated Technology
Most of India’s production processes are labour-intensive and lack modern machinery or innovations, slowing productivity and efficiency.
Social Issues
Social problems like communalism, caste discrimination, male dominance, and outdated beliefs restrict economic growth and development in the country.
Low Per Capita Income
India’s average income per person is very low compared to other developing countries. In 2020-21, the per capita net national income, based on 2011-12 prices, was estimated at around ₹86,659 by the Central Statistics Office (CSO).
Positive Developments
Despite these challenges, there are many positive changes in the Indian economy. Government initiatives like Digital India and Make in India have helped improve the economy by boosting digital connectivity and promoting manufacturing. India is steadily working towards a stronger and more stable financial structure.
FAQs on Characteristics of Indian Economy
1. What are the main characteristics of the Indian economy?
The Indian economy is known for its diversity and unique structural features. It is often classified as a developing mixed economy with a large population and significant agriculture sector. Key characteristics include:
- Agricultural dominance: A large percentage of the population depends on agriculture for livelihood.
- Population: India has a huge and growing population, which affects employment and resources.
- Mixed economy: India combines private enterprise with government-controlled public sector undertakings.
- Low per capita income: Many Indians still live with limited income levels.
- Uneven development: Social and economic progress varies widely across regions.
2. What style of economy does India have?
India has a mixed economy, which means it combines elements of both capitalist and socialist systems. In this model, private businesses operate freely in many sectors, but the government also owns and manages certain key industries such as defense, railways, and some major utilities. This allows the country to encourage economic growth and entrepreneurship while also seeking to ensure social welfare through public investment. The mixed economy style helps balance individual freedom with the need for development and reduces the risks associated with either completely free-market or centrally planned systems. India's mixed economy has evolved over time to adapt to globalization and technological progress.
3. Which feature is most characteristic of a developing economy like India?
A defining feature of a developing economy like India is its low per capita income. This reflects the relatively modest income earned by average citizens compared to developed nations. The country also shows rapid population growth, widespread poverty, and heavy reliance on agriculture. These factors interact to limit savings and investment, slowing economic progress. While India is advancing in technology and services, its status as a developing economy is still marked by these primary characteristics. Addressing low per capita income remains essential for India to achieve broader, more inclusive growth in the future.
4. What were the main features of Indian society and economy?
Indian society and economy have historically been shaped by a mix of tradition and change. Key features include a rural and agrarian base, deeply rooted social hierarchies, and a focus on community and family structures. Economically, the country depended heavily on agriculture, crafts, and small-scale industries for centuries. Socially, the caste system and joint family setup were prominent. Over time, economic liberalization and urbanization have increased the role of the service sector and improved social mobility, but traditional elements still influence aspects of both society and economy today.
5. How does India’s population impact its economy?
India’s large and fast-growing population has a major impact on its economy. High population density puts pressure on resources, increases demand for jobs, and creates challenges in healthcare and education. However, it also provides a vast labor force and a strong domestic market for goods and services. The demographic dividend, with a young workforce, can drive economic growth if harnessed effectively. Managing population growth and investing in human capital remain vital for maximizing India’s economic potential and improving living standards.
6. Why is agriculture considered the backbone of the Indian economy?
Agriculture is often called the backbone of the Indian economy due to its significant role in providing livelihood and food security. A large segment of India’s population depends directly or indirectly on agriculture for employment. The sector also supplies raw materials for industries and contributes to exports. Despite the growth of manufacturing and services, agriculture’s influence on rural development, employment, and economic stability is vital. Continuing to modernize agriculture is essential for overall balanced economic development in India.
7. What are the challenges faced by the Indian economy?
The Indian economy faces several challenges that affect its pace of development. Some major issues include:
- Unemployment: Many people, especially youth, struggle to find stable jobs.
- Poverty: Large parts of the population remain below the poverty line.
- Regional disparity: Economic growth is uneven across different states.
- Infrastructure gaps: Need for improved roads, transport, and power.
- Low productivity: Particularly in agriculture and small industries.
8. How does the service sector contribute to the Indian economy?
The service sector plays a crucial role in India’s economic growth and transformation. It includes industries like information technology, finance, telecommunications, retail, tourism, and education. This sector contributes the largest share to India’s GDP and provides significant employment opportunities, especially in urban areas. The expansion of the service sector has helped reduce dependence on agriculture and has attracted foreign investments. As the service economy continues to grow, it drives modernization and helps integrate India into the global marketplace, making it a key driver of national progress.
9. What is the role of the public and private sector in the Indian economy?
India’s mixed economy features strong roles for both the public and private sectors. The public sector handles infrastructure, defense, heavy industries, and certain services, ensuring basic needs and security. The private sector drives innovation, competition, and entrepreneurship, especially in industries like manufacturing, IT, and consumer goods. This combination allows India to balance social welfare with economic efficiency. Collaboration between the two sectors is important for sustainable development and addressing the needs of a diverse population.
10. How is inequality seen as a characteristic of the Indian economy?
Inequality is a noticeable characteristic of the Indian economy, evident in both income and opportunities. Differences exist between urban and rural areas, as well as among different states and communities. Some regions enjoy high levels of development and incomes, while others lag behind with limited access to education, healthcare, and jobs. Social factors, such as caste and gender, also influence economic disparity. Reducing inequalities is essential for achieving inclusive growth and improving the overall standard of living in India.
11. How has globalization affected the Indian economy?
Globalization has significantly transformed the Indian economy since economic reforms in the 1990s. India has opened its markets to foreign direct investment (FDI), encouraged exports, and adopted modern technology. These changes have created new jobs, increased competitiveness, and fueled growth in sectors like IT and services. However, globalization has also introduced challenges such as increased competition and vulnerability to global shocks. Overall, globalization has accelerated India’s economic integration with the world, driving innovation and modernization while highlighting the need for policies that protect vulnerable groups.
