The following points highlight the seven basic issues of the Indian economy.

Issue # 1. Low Level of National Income and per Capita Income:

Economic growth of any country can be viewed from its level of national income and per capita income. It is said that higher the level of national income, higher is the rate of eco­nomic growth. India’s net national product (NNP) at factor cost in 1999-00—at current prices—stood at Rs. 1,590,301 crores.

This amounts to saying that per capita income came to Rs. 16,047 per an­num. Such low per capita income implies that the standards of living of the vast majority of people are miserably low. Even the basic necessities are beyond their means. Comparing India’s per capita income with the other countries of the world, we find that India is one of the poorest nations of the world.

In 2000-01, world’s one of the highest per capita income levels was attained by the U.S.A. Its per capita income was equivalent to $34,260 dol­lars in 2000-01. India’s per capita income at that time came to $460. It is true that national income figures of different countries are not, strictly speak­ing comparable. Still India’s ranking in this re­spect is at the bottom level. So India is as an un­derdeveloped (of less developed) country.

Issue # 2. Vast Inequality and Widespread Pov­erty:


Not only per capita income is low, but In­dian economy is also marked by great inequalities in the distribution of income and wealth. In a mixed capitalist economy, inequalities are inevitable since the Constitution ensures ‘right to private property’. In India, inequality is increasing over­time. The logical corollary of this inequality is mass poverty. Nearly 60% of the total population share one-third of India’s national income while only the rich 5% of the total population enjoys two-thirds of national income.

This inequality wid­ens the problem of poverty. In 1951 -52, more than 50% of the total population lived below the pov­erty line. Due to some economic progress the pov­erty ratio has come down to about less than 37% in 2000. In short, Indian economy is still threat­ened by the vicious circle of poverty. The failure to achieve a higher growth rate has resulted in such a precarious situation. In fact, this is one of example of pitfalls planning.

Issue # 3. Predominance of Agriculture:

Less de­veloped countries (LDCs) live mainly upon agri­culture and extractive industries, like mining, fish­eries and forests. Although agriculture occupies a predominant position in India, it is still backward. The predominance of agriculture is explained from the view-point of sectoral composition of national income and occupational pattern. In India, in 1951-52, 55.8% of GDP (at current price) came from agriculture and allied activities or the so- called primary sector.

The contribution of indus­try and services were 15.2% and 29%, respec­tively. In 2000-01, however, the contribution of the primary sector to GDP fell to about 26%. The contributions of the secondary and tertiary sectors rose to 22% and 52%, respectively. Thus, even after about 50 years of planning, agriculture alone contributes about one-third of India’s national in­come. The occupational structure also tells a story of predominance of the agricultural sector and the backwardness of the industrial sector. In India, 64.2% of total population was engaged in agricul­ture and 70% people live on the incomes from land in 2001.

Issue # 4. Tremendous Population Pressure:


In LDCs, the rate of growth of population is very high. So far as the size of population is concerned, India ranks second, next only to China. India’s population in 1999-00 about 102.7 crores. Since independence the growth rate of population in In­dia was 2.2% per annum, compared to less than 1% growth rate of population of developed coun­tries? According to World Bank, when the popula­tion of a country exceeds 2% per annum, the coun­try is said to be over-populated. High birth rate and low death rate are the two causes of popula­tion explosion in India.

Issue # 5. Massive Unemployment:

In LDCs, not only are natural resources under-utilised but also a massive wastage occurs in manpower resources. Slow economic growth rate on the one hand and rapid growth of population on the other hand has accentuated the problem of unemployment in In­dia.

Between July 1983 and April 1997, the number of unemployed in India increased from 5.9 million to 7 million while employment in­creased from 283.2 mn. to 416.4 mn. The number of applicants on the live register of employment exchanges at the end of December 1999 was 40.371 lakhs as against 36,300 lakhs in 1991 and 17,838 lakhs in 1981.

Not only this, Indian agriculture exhibits a considerable amount of underemployment and disguised unemployment. In the urban areas also we find hidden unemployment. At present, indus­trial sickness as also the exit policy of both pri­vate and public sector enterprises are conjointly causing a sharp increase in the number of displaced workers. It is somewhat tragic as well as para­doxical that despite huge investment made dur­ing the plan period, unemployment problem has become more and more serious. This leads to huge wastage of human resource.

Issue # 6. Low Rate of Saving and Capital Forma­tion:


As people in LDCs are poor their capacity to save is low. This results in a low rate of capital formation. That is why development economists suggest that to break the vicious circle of poverty it is necessary to push up the rate of investment. Since India is a capital-poor country, capital per head is low. This scarcity of capital causes over­all backwardness of the Indian economy.

Other things remaining the same, nations that invest more in human and physical capital tend to grow more rapidly than other countries having low rates of saving (and capital formation).

No doubt capital investment is a significant factor in the process of transformation of an economy—from an agrarian society to a highly industrialised nation. Investment plays two dis­tinct roles in the process of growth. Firstly, it en­larges an economy’s capacity to produce goods and services and raise the productivity of re­sources. Secondly, it increases, via multiplier ef­fects, aggregate demand and national income. An increase in national income raises the level of sav­ings, thereby providing the finance for future capi­tal accumulation.

Vicious circle of poverty:

Some economists like Ragnar Nurkse argue that LDCs like India are caught in poverty because they cannot gener­ate sufficient savings to finance capital formation. They believe that LDCs are caught in a vicious circle of underdevelopment.

Nurkse believed that a subsistence economy will remain as such because total output is low, with little or no saving. Hence, after consump­tion takes place, there is no surplus for capital accumulation without which there is little hope of increasing output.

The key to breaking the vi­cious circle is capital formation. If a country suc­ceeds in breaking out of the vicious circle, then the opposite effect can happen, in fact, a virtuous circle; once the process of capital formation be­gins, output rises, and then income rises, giving a larger surplus from which more savings can con­tribute towards investment and capital accumula­tion.

Nations that manage to save and invest only a small portion of their income will be able to grow slowly, if at all. Thus, according to Nurkse, the poverty of LDCs becomes self-perpetuating poor societies are unable to save and invest. Since the rate of capital formation is low, they are un­able to eradicate their poverty.

The vicious circle of underdevelopment (poverty) refers to a pattern of low income and low economic growth, which tends to perpetuate itself since the current consumption demands of poor nations are low. In turn, the low investment rate retards future growth of low income nations, causing poor nations like India to remain poor.


In 1950-51, net domestic savings stood at 5.5% of NDP. In 1999-00, it rose to 14.3% of NDP.

This is still quite low by current standard. Net do­mestic capital formation increased from 5.2% in 1950-51 to 15.5% in 1999-00.

Along with the low volume of physical capi­tal, human capital formation is also low. As per 1981 census, 43.6% of the total population at that time were illiterate. The literacy rate has later (2001 census) gone up to about 65.4%. Illiteracy still acts as an impediment to India’s economic development.

Issue # 7. Use of Traditional Technology:

Due to illiteracy and lack of use of advanced or sophisti­cated technological institutions we are forced to use primitive methods of technology whose pro­ductivity is low. Though modern industrial sector employs advanced technology, village industries still employ old and hackneyed methods—even in the age of modern science. This technological dualism persists in LDCs like India. Truly speak­ing, low productivity of Indian labour is explained in terms of low level of technology.


So the conclusion is that all the characteris­tics of LDCs are found in India. No doubt during the planning era she has made progress in differ­ent directions. Still, considering the needs of the country, it is inadequate. Indian economy is char­acterised by low per capita income, widespread poverty, massive unemployment, gigantic rise in population, and so on. So, India is an underdevel­oped country. India is one of the poorest nations of the world. Her position is worse compared to even some African countries!