Characteristics of Indian Economy

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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 which contribute to the nature and characteristics of 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.


Characteristic Features of Developing Economies

A developing economy is one in which the process of development has begun, but it has not affected the whole economy in a full-fledged manner as of yet. The following are some of the characteristic features of developing economies:

  • Low Per Capita Real Income

The real income of a country refers to the purchasing power of the country as a whole in a given financial year, while the per capita real income refers to the average purchasing power of the country or the purchasing power of an individual in a country in that year. Developing countries share the characteristic of a low per capita real income.

  • High Rate of Population Growth

Where there is a high population, there also has to be the infrastructure in place to support that population. This means there need to be enough educational and medical facilities, enough employment opportunities with good salaries, etc. With a high population, especially an increasingly high population, providing these facilities to each citizen becomes a huge task and most often, governments are unable to follow through, thus leaving the economy in the developing stage.

  • High Rate of Unemployment

As mentioned before, the appropriate opportunities and facilities are unavailable for the high population in developing countries. Unemployment is a problem that deserves an explanation of its own because a lack of employment leads to a lack of funds for an individual and his or her family to even beget the basic necessities of life.

  • Dependence on the Primary Sector

When institutions have not yet been developed in a country, and there are not enough jobs available for people, they have to turn to what they have been doing for centuries before - primitive primary sector jobs. While these jobs, such as agriculture, are incredibly important in the larger perspective, they do not fetch workers a whole lot of income, neither do they add to the development of an economy to a very large extent.


Vicious Circle of Poverty

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The vicious circle of poverty works on both the demand side as well as the supply side. On the demand side, the vicious circle of poverty refers to when the purchasing power (real income) of the country is low, leading to the unaffordability of goods and services. With this comes the supply side, where, since the goods and services aren’t selling, there is a deficiency of capital leading to low rates of investment, and thus a low level of per capita real income. This is how the vicious circle of poverty works and it is rather common to see in developing economies.


Nature and Characteristics of Indian Economy

All the characteristics of a developing economy that we have discussed above hold true for the Indian economy. Let’s take a look at how so with the basic characteristics of 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.

FAQ (Frequently Asked Questions)

Q1. What are the Characteristics of Indian Economy?

Ans. To put it in a nutshell, the following are the basic characteristics of Indian economy:

  • Low per capita real income or a low individual purchasing power in the country, which lies at 1.35 lakh rupees as of 2019-20.

  • A high rate of population growth with a population of 1.38 billion and growing.

  • A very high rate of unemployment, underemployment and disguised unemployment in all sectors of the economy.

  • High dependence on the primary sector due to the underdevelopment of the tertiary and secondary sectors (about 70% of India’s population still works mainly in agriculture).

  • The never-ending vicious circle of poverty which affects most of India’s population.

Q2. What is the Vicious Circle of Poverty?

Ans. The vicious circle of poverty refers to a circular constellation of factors which act and react in such a manner that they end up keeping a poor country poor, as if in an unbreakable rut. The vicious circle of poverty can start with any of its factors - a low per capita real income leads to low demand, leading to low investments and lackadaisical attitudes like lethargy of labour and low productivity. This, again, leads to a low per capita income due to the lack of sales of goods and services, and thus, the vicious circle continues.  

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