Indian Economy-Introduction 2023
Indian Economy- Economy An Introduction
Economy is a framework, within which economic activities are carried out, which could be investment, production and consumption etc. The economy of India is the 10th largest in the world by nominal GDP and the 3rd largest by Purchasing Power Parity (PPP) On a per capita income basis. India ranked 140th by nominal GDP and 133rd by GDP (PPP) in 2013, according to the IMF India is the 17th largest exporter and the 10th largest importer in the world.
Definition Of Economy.
An economy consists of the production, trade of distribution and consumption of limited goods and services by different agents in a given geographical location. The economic agents can be individual, businesses, organisations or governments.
Types of Economy
Following are the types of economy
Traditional Economy : In this type of economy, there is very little government involvement Allocation of resources here is based on rituals, habits or customs
Free Market Economy: This type of economy also has very little governmental interference or control. Economic decisions here are made based on market principles.
Capital Economy : In this type of economy, the central problems of economy te, there is no interference by the government and price mechanism operate through the forces of demand and supply in the United States of America, the role of the government is minimal and thus, it is the best example of market economy
Socialist Economy : All important decisions regarding production, exchange and consumption of goods and services are made by the government. The closest example of a centrally planned economy is the Soviet Union for the major part of the 20th century.
Mixed Economy : This type of economy consist of a Combination of public sector and private sector units. It's basically incorporate govermental involvement in Market based economy. Approval of RBI
Welfare Economy
Welfare economic analysis the total good or welfare le, achieve at a current state as well as how it is distributed. Amastya Sen received the Nobel Prize in economic science for his work in welfare economics
Green Economy
It is one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities Green economy is an economy of economic development model based on sustainable development and a knowledge of ecological economics
Sectors of Economy
Traditionally, economies are divided into the following three sectors
Primary Sector
This sector is involved in the extraction ar
harvesting of products from the Earth I includes the production of raw materials:
and basic foods
Some of the activities included in this sector
are as follows
- Agriculture
- Forestry
- Secondary Sector
- Mining Fishing etc.
The secondary sector
The economy is involved in the production of finished goods construction activities lie in this sector Some of the activities in this sector are as
All manufacturing processing and
follows
- Manufacturing e.g. building
- Production eg, cloth and bread
- Electricity, gas and water etc related works.
Tertiary Sector
The tertiary sector of the economy is also called as the service sector.
service sector. Some of the activities, as follows
• Retail
• Banking
• Tourism
- Transport and communication
- Entertainment
- Trade etc
{ Core SectorThe core sector consists of eight core industries in the economy having a weight age of 37.90% in the Index of Industrial Production (IP). These eight sectors are com crude of natural gas petroleum refinery products fertilizers, steel, cement and electricity. }
Source Year 2012-13
World Bank Classification GDP Per Capita
Low Income Countries: $ 1035 or less
Middle Income Countries: $1036 $ 4065
High Income Countries: $ 4086 S 12615
Economic Growth and Development
Economic Growth:
•It is a quantitative aspect, which generally refers to a long-term tendency reflected by an increase in the flow of goods and services produced by the economy
• Economic growth is conventionally measured as a percentage increase in GDP or GNP or per capita NDP during 1 year Per capita NDP is the most appropriate measure of Economic Growth Rate.
NNP-Net national product of curent year.
Economic Development .
•It is a qualitative aspect, unlike economic growth, which is a quantitative aspect. It means growth accompained by welfare or equity.
•Economic development is a multi-dimensional measure, while economic growth emphasis on production Le.. GDP and per capita income, Economic development emphasis upon welfare, equality and quality.
Measurement of Economic Development
There are various models to measure economic development and comparative situation of different countries.
•Purchasing power parity method
•Human development index
• Green GNP
• Poverty Index
•Net economic welfare
•Basic necessities
• Physical quality of life index
• National prosperity index
• Gender based development index
Least Developed Countries (LDCs)
• These are countries, which exhibit the lowest levels of socio-economic indicators. According to United Nations, to be classified as an LDC, a country should meet the following criteria
Low Income : Last 3 years, average GDP per
capita should be less than US $ 905, which should exceed US $ 1086 to leave the list.
Human Resource Weakness : it is on indicators of nutrition, health, education and
adult literacy.
• Economic Vulnerability It is based on instability of agricultural production, instability of exports of goods and services and the percentage of population displaced by natural disasters.
National Income
•It measures the net value of goods and services produced in a country during a year and it also includes net factor income from abroad. Le., National Income measures the productive power of an economy in a given period to turn out goods and services for final consumption. In India, National Income estimates are related with the financial year (1st April to 31st March).
• National Income can be measured by GND, GDP, GNI, NNP, NNI and per capita income. GNP and per capita income, though considered as the most standard measure of economic development have some limitation, since they exclude poverty, literacy, public health, gender equity and other measures of human prosperity.
Estimates of National Income in India.
•In 1863, the first attempt was made by Dadabhai Naoroji in his book Poverty and UN-British Rule in India. He estimated the per capita annual income to be t 20.
• The first scientific attempt to measure national
income in India was made by Professor VKRV Rao in 1931-32. He divided the Indian economy into 13 sectors
•In 1949, National Income Committee under the Chairmanship of Professor PC Mahalanobis was constituted. The other members being Professor VKRV Rao and Professor DR Gadgil.
• National Statistical Commission (NSO) was set-up on 1st June, 2005, for promoting statistical network in the country. It was then headed by Professor SD Tendulkar.
Estimation of National Income at
Estimation Of National income a Current and Constant PriceNational Income at Current Prices When goods and services produced by normal residents of a country in a given year are estimated at current prices, it is called national income at current prices. Current prices refer to the prices prevailing during the year for which estimates are made Thus, it is estimation of goods and services produced during a year on the basis of the prices of the same year
*National Income at Constant Prices When goods and services produce by normal residents of a country during a year are valued at fixed prices. /.e. prices of the base year, it is called notional income at constant prices.
Other Concepts of National Income Other
Gross Domestic Product (GDP)
It is the money value of all final goods and services produced in the domestic territory of a country. during the given time (a year). In GDP, income generated by foreigners in a country is included, but income generated by nationals of a country, outside the country is not included.
( GDP=C+I+G+(X-M) )
C-Total Consumption Expenditure
/ - Total Investment Expenditure
G-Total Government Expenditure
X-Export M-Import
In GDP, income generated by foreigners in a country is included, but income generated by nationals of a country outside the country is not included.
Net Domestic Product (NDP)
It is the value of GDP after deduction of depreciation of plants and machinery from
Gross National Product (GNP)
It is the monetary value of all final goods and services produced by the residents of a country in a year.
Net National Product (NNP)
It is the value of GNP after deducting depreciation of plant and machinery
National Income (NI)
In India, Net National Income at factor cost is called National Income.
Disposable Personal Income (DPI)
The persons will have to pay the personal tax on personal income. Any income remaining out of personal income after the payment of personal tax and some other fines is termed as disposable personal income.
Real National Income (RNI)
It is the actual quantity of goods and services produced. The standard of living depends very much of the qualities of goods and services
p. luced.
( NNP=GNP - Consumption of capital stock)
Personal Income (PI)
It is the part of National Income, which is received by the persons including households. Therefore, to calculate personal income, some adjustments are to be made for those incomes, which are included in the national income but not actually received by the persons and there may be some income which is not included in national income but they are actually received by the persons.
Pl= NNPFC - Undistributed profits- Corporate tax-Net interest payments made by households + Transfer payments to the households from the government and firms
Market Price and Factor Cost
*Market Price It refers to the actual transacted price and it includes indirect, direct taxes such as excise duty, VAT, Service Tax, Custom duty etc but it excludes government subsidies
*Factor Cost It means the total cost of all factors
of production consumed or used it producing a goods or services. It includes government grants and subsidies but it excludes indirect tax.
[ Difference between GDP and GNPIn GDP, goods and services produced in a country is added, whether it is produced by residents of the country or foreigners Whereas the GNP is the monetary value of all financial goods and services produced by the residents only of a country in a financial year. ]
Conclusion.
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