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 according to the CBSE syllabus for 2025-26?
The Indian economy is characterised as a developing, mixed economy. Key features as per the syllabus include:
- Low Per Capita Income: The average income per person remains low compared to developed nations.
- Dependence on Agriculture: A large portion of the population relies on agriculture, which contributes significantly to the GDP.
- High Population Density: India faces challenges and opportunities due to its vast population.
- Income Inequality: There is a significant gap in wealth distribution between the rich and the poor.
- Prevalence of Poverty and Unemployment: A substantial part of the population lives below the poverty line, with high rates of unemployment and underemployment.
- Poor Infrastructural Development: There are significant gaps in essential services like electricity, sanitation, and transportation.
- Slow Rate of Capital Formation: The rate of investment and capital accumulation is relatively slow.
2. Why is the Indian economy often described as a 'mixed economy'?
The Indian economy is called a mixed economy because it features the coexistence of both the public (government-owned) sector and the private (individually-owned) sector. The government intervenes in key areas for social welfare and infrastructure development, while the private sector operates based on market forces and profit motives, driving growth and innovation.
3. Why is India still considered a developing economy despite its high growth rate?
India is considered a developing economy because several socio-economic indicators lag despite a high GDP growth rate. Key reasons include a low per capita income, widespread poverty, high levels of unemployment, significant income inequality, and a low ranking on the Human Development Index (HDI), which considers factors like life expectancy, education, and standard of living.
4. How does India's large population influence its economic characteristics?
India's large population has a dual impact on its economy. On one hand, it provides a large labour force and a vast domestic market, which can drive consumption and growth. On the other hand, it puts immense pressure on resources, infrastructure, and employment, leading to challenges like unemployment, low per capita availability of goods, and difficulties in providing quality education and healthcare to all.
5. What is the role of the agricultural sector in the Indian economy?
The agricultural sector plays a crucial role in the Indian economy. Although its contribution to the Gross Domestic Product (GDP) has decreased to around 17%, it remains the largest employer, with nearly 53% of the population depending on it for their livelihood. It ensures food security for the nation and provides raw materials for many industries.
6. How do poverty and income inequality create a 'vicious circle' in the Indian economy?
Poverty and income inequality create a vicious circle by suppressing both demand and supply. Low income levels reduce the purchasing power of the majority, leading to low demand for goods and services. This low demand discourages businesses from investing and expanding production, resulting in fewer jobs and slow capital formation. This, in turn, perpetuates low incomes and poverty, making it difficult for the economy to break the cycle.
7. What are some of the major infrastructural challenges facing the Indian economy?
The Indian economy faces several infrastructural challenges that hinder its growth. A significant portion of the population lacks access to basic facilities. Key issues include:
- Energy: Many households still lack access to reliable electricity.
- Sanitation: A large number of people do not have access to proper sanitation facilities.
- Water: Millions lack access to safe and clean drinking water.
- Transport: While improving, road, rail, and port networks require significant upgrades to function efficiently.
8. What is the difference between 'economic growth' and 'economic development' in the context of India?
In the context of India, economic growth refers to the quantitative increase in the nation's output, primarily measured by the rise in GDP. In contrast, economic development is a broader, qualitative concept that includes not only economic growth but also improvements in the quality of life and social well-being, such as better education, healthcare, and a reduction in inequality. While India has shown strong economic growth, achieving widespread economic development remains a key objective.
