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Economic Challenges in India

Last updated date: 28th Feb 2024
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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 India

1. What is the Full Form of LDCs?

The full form of LDCs means Least developed countries

The least developed countries (LDCs) are the low-income countries that confront severe structural impediments to sustainable development. The least developed countries are highly vulnerable to economic and environmental shocks and thus have low levels of human assets. In fewer cases, the less-developed countries are referred to as the "emerging markets." LDCs have access to international support measures for assistance in their development and trade.

2. What is the Meaning of Capital Formation?

Capital is a prior factor of production particularly in a developing economy like ours. Capital Formation is defined as a part of a country's output and the imports which is not consumed or are exported during the accounting period, but this is set aside as an addition to the stock of capital goods.

Capital Formation means making and increasing more capital goods, like machines, tools, factories, buildings, raw materials, fuels, etc., which are to be further used in producing their output.

3. What Steps are Taken By the Government to Resolve the Economic Problems?

Since the outbreak of the Covid-19, our government has continuously strived to save the economy. He issued various policies, relief funds to help the economy strengthen again. Among them are the following which is worthy to be noted:

  • Cheaper Cash – Series of steps that allow the bank to lend easily.
  • Loan Freeze – The RBI Governor has stopped the loan repayment as announced by PM Modi. 
  • Special Windows – Through these the corporate borrowers as well as the rural industries are supported.
  • Dividends Halted – The banks cannot pay dividends for the year ending March 31 to conserve the capital flow. 

4. What is the Role of Agriculture in India's Economy?

With more than 50% of people engaged in agriculture it is one of the biggest factors to be addressed in the Indian economy. With this huge employment the contribution to GDP of agriculture is only 14%. With low productivity, agriculture creates a sense of employment for a lot of people. This in an economical term is called disguised unemployment. We have to reduce the number of people engaged in agriculture and use technology to increase their productivity so that the people will get proper employment.

5. How Covid-19 will impact the Economy of India?

With Covid-19 hitting the world economy everywhere went down and largely the developing countries took a bigger blow. One such example is India. The GDP growth of India during the second wave went into negative and with shortage of oxygenmany plants were ordered to cut down production to produce oxygen. Below were the highlight of the time:

  • Around two years growth lost

  • Inflation is high after a long check

  • Credit offtake in commercial sector is too poor

  • With a third wave lurking around the challenges can be folded more.

6. Where can I find More about the Economy of India?

We have created many articles and study materials on the economy as an overall and specific to countries and market's. The materials are created by the best of teachers and lecturers around the country. The materials will help you fast pace your understanding of economics to a very deep level. You can try searching any complex topic in our libraries and get started with it. We encourage you to sign up today and start with a new way of learning. 

7. How is Our Green Goal going to Affect Our Economy?

As we know our economy is not too great and it is still dependent on fossil fuels. We as a responsible country have been committed to the Paris agreement goals which will be determinant towards a green tomorrow. But for this we will have to spend a lot of our resources in changing the conventional energy sources to non-conventional one. We were recently on the verge of an energy crisis and this may be more frequent in future. These things Wii have a negative impact on our economy.

8. What is the impact of FDI on the Indian Economy?

FDI stands for the foreign direct investment and is the monetary inflow that comes to a country for investment. This investment boosts the economy by providing the finances to the industry. This creates jobs and with jobs it also boosts the local sales and circling of the economy through different hands. As per the current situation of India the country is seeing a huge inflow of FDI into a lot of industries. This is a great sign for the country's economy and is surely heading with a great speed towards the right direction.