Indian Economy
Economics? Economy ?
Economic Development?
Syllabus - Prelims
• Economic and Social Development-Sustainable Development,
• Poverty, Inclusion, Demographics,
• Social Sector Initiatives, etc.
Syllabus - Prelims
1. Introduction 10.Capital Market &
Money Market
2. National Income
11.Poverty &
3. Inflation
Unemployment
4. Monetary Policy
5. Fiscal Policy
6. Taxation
7. Business Cycle
8. External Sector
9. Banking & Reforms
Trend over the Years
Subject 2011 201 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2
Current 13 3 8 13 22 27 24 31 28 7 7 15
Events
Economy 19 17 18 12 13 19 11 11 12 18 14 14
Economics - The Discipline
• Economics -the study of how society uses scarce resources,
to produce valuble commodities and distribute them among
different people.
• Economics Vs Economy vs Economic Development
Microeconomics vs Macroeconomics
• Microeconomics is the study of economics at an individual, group, or
company level.
• Whereas, macroeconomics is the study of a national economy as a whole.
• Microeconomics focuses on issues that affect individuals and companies.
Macroeconomics focuses on issues that affect nations and the world
economy.
• Unemployment, interest rates, inflation, GDP, all fall into Macroeconomics.
Consumer equilibrium, individual income and savings are examples of
microeconomics.
Macro- economics
• Macroeconomics, on the other hand, is the field of economics that studies the
behaviour of the economy as a whole and not just on specific companies,
but entire industries and economies.
• This looks at economy-wide phenomena, such as Gross National
Product (GDP) and how it is affected by changes in unemployment, national
income, rate of growth, and price levels.
• For example, macroeconomics would look at how an increase/decrease
in net exports would affect a nation's capital account or how GDP would be
affected by unemployment rate.
Organizing an Economy
• Capitalistic Economy
• State Economy
• Mixed Economy
Factors that Determine the type of Economy
• Who owns factors of production?
• What goods and Services produced?
• How they are distributed?
• How the prices are fixed?
Capitalist Economy
• Its origin is ―Wealth of nations‖ by Adam Smith (1776) – Scottish philosopher
at Glasgow university.
• Capitalism is defined as an economic system in which the means of
production, trade, and industry are owned and controlled by the private
individuals or corporations for profit.
• Also known as the free market economy or laissez-faire economy.
• Under this political system, there is minimal government interference, in
the financial affairs.
• The key elements of a capitalistic economy are private property, capital
accumulation, profit motive and highly competitive market.
State Economy
• Proposed by German Philosopher KarlMarx.
• State Economy or Socialism is defined as an economy in which the
resources are owned, managed and regulated by the State.
• The central idea of this kind of economy is that all the people have similar
rights and in this way, each and every person can reap the fruits of
planned production.
• As the resources are allocated, in the direction of the centralized authority,
that is why it is also termed as a Command Economy or Centrally Planned
Economy.
• Under this system, the role of market forces is negligible in deciding the
allocation of factors of production and the price of the product.
• Public Welfare is the fundamental objective of production and distribution of
product and service.
Mixed economy
• A mixed economy is defined as an economic system consisting of a mixture of
either markets and economic planning, public ownership and private
ownership, or markets and economic interventionism.
• However, in most cases, "mixed economy" refers to market economies with
strong regulatory oversight and governmental provision of public goods,
although some mixed economies also feature a number of state-run enterprises.
• The government would wield indirect macroeconomic influence over the economy
through fiscal and monetary policies designed to counteract economic
downturns and capitalism's tendency toward financial crises, unemployment, and
growing income and wealth disparities, along with playing a role in interventions
that promote social welfare.
Growth vs Development
13
Economic Growth
• Economic growth refers the long term increase in real national
output or real national income.
• Any increase in national income can offset with rapid growth of
population if we don’t take per capita income as a measure of economic
growth.
• Further, despite of increase in per capita income, the number of poor
people may rise if the distribution of income remains unequal.
• Thus, Economic growth is a single dimensional quantitative
concept which is concerned only with the rate of increase in
national income.
• It ignores distribution of income and it ignores qualitative aspects
of human life.
Economic Development
• Economic development is broader in nature.
• It not only includes the quantitative change but also includes certain
qualitative changes in the economy.
• Economic development means not just increase in the real per capita income
but also reduction in economic-divide, poverty, illiteracy and
unemployment.
• Thus, economic development includes both economic growth as well as
social welfare.
• Economic development should focus on inclusive growth – growth that
includes all sectors of the economy and all sections of the society.
Sectors of Economy
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PRIMARY SECTOR
• Activities undertaken by directly using
natural resources.
• Example—Agriculture, Mining, Fishing,
Forestry, Dairy etc.
• It is called primary sector because it
forms the base for all other products
that we subsequently make.
SECONDARY SECTOR
• It covers activities in which natural
products are changed into other forms
through ways of manufacturing that we
associate with industrial activity.
• It is a next step after primary, where the
product is not produced by nature but
has to be made.
Tertiary Sector
• These are the activities that help in the development of the primary & secondary
sector.
• These activities by themselves do not produce good but they are an aid and support
to the production process.
Example:
a)Transportation--Goods that are produced in the primary sector need to be
transported by trucks or trains and than sold in the wholesale and retail shops;
b) Storage--at times it is necessary to store these products in godowns, which is
also a service made available.
c)Communication --talking to others on telephone);
d) Banking--borrowing money from the banks.
• Since these activities generate services rather than goods it is also called Service
sector.
Tertiary Sector
• Quaternary activities are specialized tertiary activities in the ‘Knowledge
Sector’ which demands a separate classification.
• There has been a very high growth in demand for and consumption of
information-based services from mutual fund managers to tax consultants,
software developers and statisticians.
• Quinary activities are another subdivision of the tertiary sector representing
special and highly paid skills of senior business executives, government
officials, research scientists, financial and legal consultants, etc.
• The highest level of decision-makers or policymakers performs quinary
activities.
TYPES OF ECONOMIES
• 1)Agrarian Economy:
―If the share of primary sector is 50% or more in the total
output(GDP) of the economy it is called Agrarian Economy‖
India at the time of Independence was an Agrarian economy(more
than 50% of total output was from Primary sector)
Now 19% of total output in 2021
However 50% of Indian population are working in Agricultural activities
(2)Industrial Economy:
• If Secondary Sector Contribute
more than 50% of total output of
the economy
•Most developed countries passed
this phase
•Indian Economy was not an
Industrial Economy
•Industrial Share = 28% in 2021
•
(3)Service Economy:
If share of tertiary sector is more than 50% in
the total output of the country
Indian Economy became in 1999 Service
Economy when tertiary crossed 50%
53% as of 2021
Normally primary to secondary to tertiary (Euro
American Model)
However as India skipped the manufacturing
sector growth
Problems of Indian Economy
• Disproportionate Employment & GDP share of Primary (Agriculture Sector)
• Skipping the Manufacturing growth Jumping from Primary to Service
Economy
• Jobless Growth
• Disguised Unemployment in Agriculture
• Land fragmentation
• Huge Poverty & Hunger levels
• Informal economy
