Economic Challenges in India

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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 

The three main economic problems are as follows:

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’.


Economic Challenges in India 

The economic challenges that are faced by the country are as follows:

1. Low Level of National Income and Also the Per Capita Income:

The Economic growth of any country is to be viewed from the level of national income and their per capita income.

This is said that the higher the level of national income, the higher will be the rate of economic growth.

2. Vast Inequalities in Income and Wealth:

The Indian economy is also marked by distinct inequalities in the terms of the distribution of income and wealth. In India, as the years pass by, these inequalities are on the rising side.

3. The Predominance of Agriculture:

The Less developed countries depend on their livelihood in agriculture and the other extractive industries, like mining, fisheries, lumbering. The predominance of agriculture is explained from the viewpoint of the composition of national income and the occupational pattern.

4. Tremendous Population Pressure:

In LDCs, the rate of population growth was very high. With the size of the population that is concerned, India ranks second next to China. India’s population is now 1110 million as of the data of 2006- 07. During the decade of 1991, the growth rate of the population in India was 1.61 p.c. per annum, as compared to 0.7 p.c. the growth rate of the population of all the developed countries.

5. Massive unemployment:

In LDCs, with the natural resources being under-utilized the manpower resources were also less utilized and thereby wasted. This slow economic growth rate on the one hand, and the rapid growth of population, on the other hand, has instigated the problem of unemployment in this country.

6. Scarcity of Capital and Low Rate of Capital Formation:

As people in LDCs are tremendously poor, their capacity to save was very low, which resulted in a low rate of capital formation. This was the reason why the development economists suggest that to break down the vicious circle of poverty, as this was necessary to push up the rate of investment. As India being a capital-poor country, the capital per head was low. This scarcity of capital causes the overall backwardness of this Indian economy.

Current Economic Issues in India

The current economic issues in India are as follows:

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.

FAQ (Frequently Asked Questions)

1. What is the Full Form of LDCs?

Ans. 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?

Ans. 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?

Ans. 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.