Growth and structure of indian economy

Are U preparing for M.A ( ECONOMICIS ) FROM IGNOU, the syllabus of economics have been revised from MEC 05 TO MEC 105, FOR INDIAN ECONOMIC SYSTEMS. I am sharing the first chapter with you here. The chapter is about growth and development of Indian economy. In little over six decades, Indian economy has gathered many development experiences; some deep changes have suggested strong economic fundamentals. It is now among one of world's fastest growing economies. There are some indicators which strongly co

'Development' Distinguished from 'Growth'
Traditional View
It says that economic development have been measured as one and the same with economic growth and can be defined as a rise in the real terms of the production of goods and services which is constant for a lengthy period, which can be calculated in terms of value added.
Modern View
According to the modern economists, development is not similar to economic growth. The modern economists have discarded traditional view and have stressed the requirement for the strategies calculated to meet the needs of the poor directly.
Concept of Economic Development
Economic development is being defined as the procedure of growing the amount of consumption and improving the output of the accessible income of a country which leads to a raise in the economic welfare of the community by inspiring the increase of national income. It can be represented with the help of a formula:
Economic Growth = Size of output (A Quantitative aspect)
Economic Development = Size of Output + Economic Welfare (A Qualitative aspect)
The definition of economic development states that the progress of development has to be charged by orientation with two indicators – the index of 'production' or 'national income' and of the 'economic welfare' of the community.
1) The 'national income' indicator covers up which can be considered as the 'growth' feature of development.
2) On the other hand, the economic welfare meter conveys the outline of portion of wealth and of the allocation of income amongst the diverse groups and modules of the society. Logically, it comes together with the 'equity' and the 'growth' feature of progress.
It wraps up the track down of economic development, the following five types of growth processes should be evaded are:
1. Jobless growth which means the progress that does not generate additional jobs or diminishes the current job opportunities.
2. Ruthless growth involves the growth outline which intensify the dissimilarities in the organization;
3. Futureless growth, involves the growth pattern which generates the non-sustainability through ecological deprivation.
4. Voiceless growth means a growth procedure which does not develop the returns of the depressed section of the civilization.
5. Rootless growth means a growth method which devastates the enlightening extraction and customary life manner of the civilization.
Economic Development and Structural Change
As development advances, leading econometricians made effort to measure the structural changes in the economies. As countries develops, such studies looks to reveal how important economic parameters are changing and are important to revolutionize. These changes can be of 5 types they are:
i) Constituents of GDP Change: Usually the proportion of shares, saving rates rise with the growth in the income, government revenues rises, food consumption falls and non-food consumption enhances, relative output of services and industry also rises, whereas agriculture falls.
ii) Employment Changes: Changes in the employment reproduces change in productivity and changes in output. Primary sector related to labor of the economy does not fall as quickly as its division in production and the turn around is exact for employment in industry where increase in labor productivity
which is more effortlessly protected.

iii) Shift in the Composition of Exports: When development starts and the economy progressively gets more opened to the world, exports will have greater quantity of incomes and may have an obvious move in the work of exports, as a result the worth of export of production of primary products starts improving.
iv) Rate of Increase in Population: When incomes rises, the pace of population can be expected to go down, since the birth rate turns down along with a reduction in the death rate. The population would be rising, but slowly the rate of growth will be inclined to go slow.

v) Distribution of Income: Income becomes unequally distributed and then this tendency would be overturned. Equity power growth can be done in two ways:

1. Differences of influence and prosperity those results in misuse and incompetent utilization of creative capital, and harmful institutional growth.

2. Uneven power also obstructs the modernization and threatening.

Throughout the previous six decades, the national income data is able to engage in the study of the importance of structural changes taking place in the Indian economy. The starting of the First Five Year Plan in April 1, 1951, expected to reinstate firmness in the economy. The Second Five Year Plan which was devised for the strategy of development. The approach affects both the rate of growth and the work of expansion.
In the period of 80's, the plan, the speed and work of growth have undergone a transformation. In 90's a new plan of development was implemented and as a result the rate of growth step up from 3.5 per cent throughout 1951- 1975, to 5.5 per cent throughout 1975-1990, to 6.5 per cent throughout 1990-2005. In year 2005-2012, it picked up the pace additionally to 7 per cent and as a result the modifications in policy and the speed of development of national income affected the structure of the economy.
Composition of Gross Domestic Product
In India, the proportion of increase in secondary and tertiary sectors has been augmented up to more than two times to that of the primary sector. All through the first two decades, the secondary sectors are having an edge over the tertiary sector. After that, the tertiary sector had developed faster than the other two sectors. In 80's, almost all the three sectors were rising at a quicker rate but the secondary sector was the highest. Afterwards, the tertiary sector started rising to the top. The service sector turn out to be a growth-driven sector in the Indian economy and now the two-thirds of the increase in the Indian economy can be credited to the tertiary sector. The outline of structural change in Indian economy is worried about the deviations in the development pattern of western and South East Asian economies. This facilitates the transfer of growing labor force from primary to secondary sector. In India, it was not practicable as secondary sector has not extended quickly and adequately to be able to attract growing labour force.
Causes of Rapid Increase in Tertiary Sector
The tertiary sector has been rising faster than the service sector, as the income produced in the method of transmission developed at a much faster pace than that in the directly productive process, resulting in an increase in the share of the non-commodity sector. This spirit means leads to income generation in the process of flow that was produced at a greatly quicker speed than that in the directly dynamic procedure, and thereby ensuing an augmentation in the division of the non-commodity sector. This tendency can be recognized to numeral issues, amongst which the most significant are as follows:
i) The most significant feature have to be at the beginning of information technology and the information market. This has improved the development of the elevated output section of the services linking with the small output actions related to huge accumulation of public.

ii) A vast distribution of the service sector has the infrastructure which mainly includes banking, insurance, finance, transport and communication and social and community services such as educational and medical facilities. An imperative condition of growth is the appropriate extension of infrastructure to provide the requirements of new sectors of the economy and the growth of the social and community services for the well-being of the people.

iii) Public services were growing exceptionally fast where national Governments have important role in preparation and manufacturing in the economy.
Actually, the noticeable actions of the modern governments as reproduced in the government strategy and in the growth outline of the national and international authorities during the previous decades are heading for the formation of quick economic and social infrastructures.

iv) The process of the expression consequence as a result of the increasing flexibility owing to growing foreign trade, tourism and cultural and educational tours is one more significant feature.

v) An Increase in the modernization can be observed as another source of increase of the service sector in the economy. But the modernization is directly connected with an augmentation in demands for infrastructure services which includes communication, public utilities and distribution services.
vi) Tourism is attracting international market because the information is being stretched out from end to end through television and Internet, and hotel accommodations were rather relaxed. Thus, tourism helped in promoting almost all sectors of the economy.
vii) An increase in the complications of contemporary industrial organization, manufacturing industries became service sloping. As a result growth in industry was reckoned as an expansion in service sector.
viii) The most significant issue which was constructive for the international environment, unlocked huge potential for the exports of India's service segment. A significant input was ended by the IT sector along with the amusement business, etc.
Prospects and Opportunities
Domestic and international factors promise the growth of services sector in India. In domestic factors, demand for services increases more than proportionately, as real per capita GDP grows and it reinforces GDP growth itself. In service sector itself, the demand for producer and government services have strong multipliers impacting on real GDP. The growth of dynamic service activities generates employment prospects on a rising scale. The rapid expansion of knowledge based services is the fastest growing segment of services. The evolution and development in IT industry has made possible to deliver the production and consumption of information based intensive service activities. The low cost of world prices of transport and communication services is another positive international factor. It is now possible to now provide value added services for production of latest and sophisticated gadgets and equipments.
The growth in the services division was having good proposition for aspects like population, employment, and trade prospects of the country. With an increase in productivity of the agricultural grains and production of goods and services in industrial sectors had a great effect on the uneven employment .
There are number of services where India enjoys comparative advantages experience and are predominately associated with the Government but there is lack of clear policy thrust. The service sector has faced multiple challenges for sustained growth for years. There are services like professional, legal, postal, accountancy and insurance that now need further liberalization to exploit their potential.
Need for an Integrated Policy
A logically designed integrated services policy (in line with the agricultural and industrial Policies) needs to be developed to make service led growth more sustainable. There should be backing up of corresponding reforms in other complimentary services to yield positive results.
In last 60 years, per capita GDP in agriculture has barely increased by 37.5 per cent while in non-agricultural sector, it has increased by over 580 per cent. In 1950-51, the ratio of the per capita GDP in non-agricultural sector to the per capita GDP in agriculture was 0.68 and increased to 3.60 in 2010-11. It is due to low growth rate of agricultural sector (2.38 per cent) than non-agricultural sector (4.83 per cent), over the whole period from 1950-51. The degree of difference has not encouraged the population in agriculture to move away to non-agricultural sector. There have been some implications. By facilitating the redevelopment of additions to the rural labour force away from agriculture is the best way of raising per capita incomes in this sector.
The organizational set up of industries, a classification of the economy between rural and urban areas has to be done. It includes the type of activities dominating the economic system in the rural and urban areas and also the way of living of the population residing in areas categorized in these two groups. During the last two decades, the rural economy has grown at a much faster (7.5 per cent per annum) as compared to urban (5.6%) on the back of strong growth in the rural non-farm sector. On the other hand, in 1980-81, the rural sector accounted for 41 per cent of the GDP and in 2010-11, this proportion has been estimated at 51 per cent, i.e., the rural sector is estimated to have overtaken the urban sector. In rural India, the growth in per capita income has almost been double to urban India. The rural economy is no more principally agrarian. In year 1970-71, 73.8 per cent of the rural GDP was generated in the farm sector. In year 2010-11, this proportion has declined to 41.6 per cent, i.e., about 60 per cent of rural GDP gets generated in the non-farm sector. In addition to this, rural India has been far more resilient in the face of the abrupt turnaround in the economy than the rest of India. It is because government is no longer spending only on programmers that deliver the final product to the beneficiaries. Furthermore, India's agriculture has been at the receiving end of a clutch of positive imperatives.
NAS (National Accounts Statistics) divides the economy into two sectors- organized sector, which is identified with a modern market economy and unorganized sector or traditional economy." During the last couple of decades, organized sector has been growing at a much faster rate than the unorganized sector, indicating growing modernisation in the organization pattern of the economy. Against all odds, the unorganized sector continues to dominate the economy with two-thirds of the NDP.
It would be constructive and useful to look at the changes that have taken place in the structure of the Indian economy in respect to the relative shares of the public and private sectors in the GDP. The public sector has practically doubled its share in the structure of the economy. The private sector still continues to dominate the structure of the economy with 75 per cent of the GDP.
Factor Shares
In national income, the relative shares of factors of production, generally indicates the elasticities of aggregate output with respect to each of these factors of production. The traditionally accepted factors of production are land, labour, capital and enterprise, and their shares are described as rent, wages and salaries (or employee compensation), interest and profits. In Indian economy, there is still another category acknowledged as 'self-employed' whose income is identified as 'mixed income'. As per NAS studies, the mixed income of the self-employed constitutes a large single component, about 40 per cent of the NDP. The second important share of the sector comprising transport, communications and trade has increased over the years, whereas the share of the secondary sector has remained almost unchanged over the years. In the current decade, the share of mixed income has shown a declining trend. In addition to this, another 40 per cent of the GDP in the economy generates in the form of "employee compensation", and over the years this proportion has been rising.. The share of the tertiary sector has been rising and is also most employment-oriented. The share of operating surplus of companies, which includes both private and public enterprises has been increasing, it jumped from about 12 per cent of GDP in 2000-01 to about 15.9 per cent in 2011-12.
The term "Occupational Structure" signifies the division of work energy in different professions. The economic growth influences the occupational structure of a country in several conducts because there was an augmentation in non-agricultural service, increase in the percentage of the population dependent on industry – manufacturing, increase in manufacturing employment, using better technology and had a faster increase in service sector. These had two-fold reasons such as there was rise in incomes brings about a large increase in demand for industrial goods and services and it results in increasing demand for labour in the manufacturing and services sector and The economic development has encouraged more capital and better techniques becoming available with agriculture which resulted in productivity of land and high labour cost, resulting in less need for labour in agriculture..
Occupational Structure in India
Few important changes in the economy observed that the proceed of modernisation of the economy was slow and does not have any key change in the structure, the allotment of cultivators came down and agricultural labourers have gone up, an essential change in this pattern signifying a major institutional shift in the economy, change in the occupational structure of States as the proportion of working population working in agriculture gone down and occupied in industries and services has gone up. The level of per capita incomes of different States also had a similar state with reference to the occupational structure. Even though the general image does not illustrate any transformation, the work of NDP showed a marked change since 1950-51. The share of the tertiary sector increased faster than the secondary sector.
The effort of Trade is investigative in respect of structure and level of development of an economy. Thus, trade acquires branch out, which resulted in more export of manufactured industrial goods and import industrial raw materials, capital equipment and technical know-how. Manufactured exports generated greater value adding than PCs as they go through more phases of processing.. The commodities inflowing trade can be classified by a variety of criteria such as value added per unit of output, productivity of labour, capital intensity in production, the strength of backward and forward linkages, etc.
Composition of India's Foreign Trade Exports
The exports can be classified in three groups as:
1) Export-oriented manufactures,
2) Domestic-oriented manufactures and
3) Non-manufactures.
The comparative distribution of these three groups in total exports has been 64 per cent, 19 per cent and 17 per cent respectively. In order to industrialize the country there is a need to have shift in manufactured exports. There are two situations to make the exports valuable and effective and they are. One, to have high technology exports which includes only 5 per cent of total manufactured. The second one is that our manufactured exports have increasingly got determined in a few things. As a positive consequence, the prospective of these items have been exhausted due to low wage rates which resulted in the natural competition. The negative consequences of concentration are lack of diversification and mismatch in structures of world and India,
The growth of population through three different stages of economic development was explained on the theory of Demographic Transition, which was formulated by Frank Notestein. It was based upon the actual experience of the developing countries. It states the growth of population by three different stages of economic development and they are. The first stage explains the backward stage of a country as it is mainly related to an agrarian economy with no mark of industrial development. Also, the birth rate and death rate were high in this stage. The second stage explains about the developing country, when resources are consumed and further leads to industrial development. The third stage explains about the developed country such as the economic development achievements, which changes the character of the country changes from the agrarian to the industrial status. Therefore, the theory of demographic transition observations states that the economic growth is a satisfactory condition for turn down in fertility.
Trends in Population
After China, India is the second major populated country in the world. As per 2011 census, the total population calculated was about 121.02 crore, which is about 17.5 per cent of the total population of the world. Before 1921, the growth of population was very slow: as a matter of fact, India's population had declined during the decade 1911-21 due to famines and epidemics. Therefore the year 1921, was termed as the 'Year of Great Divide'. Further, the census of 1931 followed by the census of 1941 traced an increase of the magnitude of about 2.76 crore and 3.97 crore respectively. During 1901-51, India's population increased by 12 crore, and further it increased by about 32.5 crore during the period of 1951 to 1981. The rising trend in population growth rate was preserved since 1951 and it was overturned during the decades 1981-2011, which states that although India maintains to grow in size, its speed of addition was reduced.


The model of income distribution in the UDCs explains broad variations, a huge share of income produced in the economy led to smaller sectors of the society, whereas a larger share of population is left to succeed on a smaller portion of income. The differences widened during the untimely phase of economic growth, moderately became stable at an agreed level, and then contracted in the higher stages of growth.
Inequalities in Distribution of Income in India
The level and scale of inequalities of income in India can be calculated on the basis of available data connecting to three main factors as:-
1) The data that is appropriate to income distribution is restricted to numeral studies used to measure the extent of inequalities. To conclude, the gross inequalities of income survive and subsist in India.
2) The disproportions and disparities were wider in the distribution of wealth, as taken out in a 2009-end study which highlights the top 10 per cent of the population had 52.9 per cent of the country's wealth, while the top 1 per cent had 15.7 per cent.
3) The information on the distribution of the household consumption is available from the data collected by the National Sample Survey Organisation (NSSO).
4) Likewise, the distribution of savings that originates in the household sector also brings out the fact of inequalities in income distribution.

Ginni Index

Ginni index for India was anticipated as 32.5 (index value of 0 implies perfect equality and 100 implies an extreme of inequality). Among a group of 106 countries, India is ranks at 51th position, much above countries like Ethiopia, Pakistan, Bangladesh, Sweden, Norway and Germany. Unpredictably speaking, the value of Ginni coefficient is higher in countries like China and Russia.


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