What are Economic Problems?
Every society faces this economic problem which is the problem of how to make the best use of the limited and scarce resources. The economic problem does exist. The problems are there as the needs and wants of people are endless, while the resources available to satisfy their needs and wants are limited.
In our next section, we will know about the three main problems of an economy. Like other economies, India being a developing economy faces the same problems. Added to these are the social challenges which the nation has to go through while dealing with the growth.
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Three Main Economic Problems
What to Produce?
The Societies decide the best combination of goods and services which meet their varied wants and their needs.
How to Produce?
The Societies also need to decide the best combination of the factors which will create the desired output for the goods and services.
For Whom to Produce?
The final question is, for whom to produce? Societies need to decide the section of people who will benefit from the output from the economic activity, and how much will they get is another question. This is often called the ‘Problem of Distribution’.
Current Economic Issues in India
Weak Demand
With the stagnated growth of demand, this seems to be the biggest challenge for the economy at the current moment. Demand for important goods and commodities like fuel, food, consumer goods, and power has fallen over the last few months.
While India’s demand woes began in the year 2019, the outbreak of coronavirus worsened the scenario. The consumer demand of India is declining as for the low household incomes caused due to the major job losses in the wake of this raging pandemic which has forced closures of the factories and businesses.
Rise of Unemployment
The latest unemployment figures, released by the Centre for Monitoring Indian Economy (CMIE), are evidence of this economic weakness. The CMIE data show that about five million or 50 lakh salaried jobs were lost in the month of July, with total layoffs in the formal sector to over 1.8 crores.
Rising Coronavirus Cases
There is the view that India will face the impossibility to tackle the economic crisis unless it manages to bring the Covid-19 situation under control in the country. India went for a strict lockdown on March 25 and decided to gradually have her un-lockdown phases.
Economic Challenges in India
India is a new country when we talk about the economy. It came out of colonial rule of the UK which left India as the poorest of the countries. After independence we as a country are still learning and trying our best to bring our country and its economy to a better place. But there are a lot of challenges in our way to achieve it. Let us have a look and discuss those challenges we face as a country in the path of economic development.
The first issue is the huge disparity in economic standard of the citizens in the country. Historically India was divided into a caste system where a certain section of society was able to gather most of the economy and resources with them for a long time. With time this became a cycle of recursion and the wealth accumulated in the segment out of the reach of many. After independence efforts were made where the resources redistribution were attempted and completed to some extent. After independence also the accumulation of wealth continued and has been mostly with the government officials and politicians. The matter of fact is money creates money. So the disparity will keep on increasing. According to a recent survey 57% of countries' wealth is within the top 10% of the population. This disparity prevents us from growing further as the lower half of the population don't have the basic infrastructure or facilities to pace themselves for a world we are currently leaving.
The second issue we have is our education and education policy. We have been continuing education from colonial rule where the main aim of the education was to create people who can work for the British government in administration. We lack to create curiosity in students, we lack in providing an experimental environment where they can explore their interest. It causes them to be interested in government jobs. After they finish education they don't want to be entrepreneurs. These attitudes prevent India from being economically self-sufficient.
Third Issue with India is the weak infrastructure. With the infrastructure we have in the country, industrial development is not easily possible. With the less production of goods India is still highly dependent on imports to meet our needs. The less production means less jobs and less economic prosperity of the country.
There are far more challenges to India's economic development but these could be the first one's we start with to resolve.
FAQs on Economic Challenges in Modern India
1. What are the major economic challenges facing modern India according to the CBSE syllabus?
Modern India confronts several significant and interconnected economic challenges that are crucial topics in the Class 11 and 12 Economics syllabus. The primary challenges include:
Poverty and Inequality: A large section of the population still lives below the poverty line, and there is a wide gap in income and wealth distribution.
Unemployment: Generating sufficient employment for a growing workforce, particularly addressing issues like underemployment and disguised unemployment.
Inadequate Infrastructure: The need for development in key areas like energy, transportation, communication, and sanitation to support economic growth.
Low Capital Formation: A relatively low rate of investment in capital goods like machinery, tools, and factories, which is essential for increasing productive capacity.
Sustainable Development: Balancing economic growth with environmental protection and ensuring resources are available for future generations.
2. What is capital formation and why is it considered a major challenge for the Indian economy?
Capital formation is the process of increasing the stock of real capital in an economy. It involves diverting a part of the current income from consumption to saving, and then mobilising these savings for investment in capital goods like machinery, equipment, buildings, and infrastructure. It is a major challenge for India because a low rate of capital formation leads to low productivity, slower GDP growth, and limited job creation, thereby trapping the economy in a cycle of poverty.
3. How does the problem of unemployment contribute to the challenge of poverty in India?
Unemployment is a direct cause of poverty in India. When a person is unemployed, they lack a regular source of income, which prevents them from affording basic necessities like food, shelter, education, and healthcare. This not only pushes households into poverty but also creates a vicious cycle. Lack of income leads to poor health and low education levels, which in turn reduces the employability of the next generation, thus perpetuating poverty across generations. Therefore, tackling unemployment is a critical step in any effective poverty alleviation strategy.
4. What is the importance of infrastructure development in overcoming India's economic problems?
Infrastructure is the foundational framework that supports all economic activities. Its importance in overcoming India's economic problems is immense. Well-developed roads, ports, and railways reduce transportation costs and improve supply chain efficiency. Reliable power and communication networks attract industrial investment, boosting production and creating jobs. Furthermore, social infrastructure like schools and hospitals improves human capital and labour productivity. In essence, robust infrastructure is a prerequisite for attracting investment, increasing competitiveness, and ensuring inclusive growth.
5. How does the goal of sustainable development create both challenges and opportunities for the Indian economy?
The goal of sustainable development presents a dual scenario for India. The challenge lies in transitioning from a fossil-fuel-dependent economy to greener alternatives, which requires massive investment, may increase short-term production costs, and could impact traditional industries. However, it also creates significant opportunities. Investing in renewable energy, waste management, and green technology can create new jobs, attract foreign investment (FDI) in new sectors, reduce long-term energy import bills, and improve public health, ultimately fostering a more resilient and competitive economy.
6. What is meant by 'disguised unemployment' and which sector of the Indian economy is most affected by it?
Disguised unemployment is a situation where more people are engaged in a job than are actually required. Even if some workers are withdrawn, the total output does not fall. This phenomenon is most prevalent in the agricultural sector of the Indian economy. Due to a lack of alternative job opportunities, entire families often work on small plots of land, where the work could be completed by fewer people. While they appear to be employed, their marginal productivity is close to zero, representing a significant waste of human resources.
7. Why is a large population often seen as an economic challenge for India, and how can it be turned into a 'demographic dividend'?
A large population is often viewed as a challenge because it puts immense pressure on resources like land, water, food, and infrastructure. It also necessitates the creation of a vast number of jobs, and if the state cannot provide adequate education and healthcare, it can lead to widespread poverty and low living standards. However, this same population can become a 'demographic dividend' if the large proportion of young, working-age people are equipped with high-quality education, skills, and healthcare. A skilled and healthy workforce can drive innovation, increase productivity, and boost economic growth, turning a potential liability into a powerful asset.
8. What is the role of Foreign Direct Investment (FDI) in addressing India's challenge of inadequate capital formation?
Foreign Direct Investment (FDI) plays a crucial role in addressing India's challenge of inadequate capital formation. FDI acts as a vital source of external capital, supplementing domestic savings and investment. It directly contributes to the stock of capital by financing new factories, machinery, and infrastructure projects. Beyond just money, FDI also brings in advanced technology, managerial skills, and access to new markets, which helps in improving the overall productivity and competitiveness of the Indian economy, thereby accelerating the pace of economic growth.
9. Explain the concept of income inequality as an economic challenge in India.
Income inequality refers to the unequal distribution of income among individuals or households within an economy. In India, it is a significant challenge where a small percentage of the population holds a large share of the national income, while a vast majority earns significantly less. This disparity is a problem because it can lead to social unrest, limit opportunities for the poor, and hamper overall economic growth. High inequality means that the benefits of economic development are not shared widely, which can reduce aggregate demand and create barriers to human capital development, thus undermining long-term prosperity.
