The Indian economy is one of the largest and fastest-growing economies in the world, characterized by diversity in resources, industries, and people. It is a mixed economy, meaning it combines elements of both capitalism and socialism—private enterprises operate alongside significant government intervention. The economy has undergone major transformations over the years, from being largely agrarian at independence to becoming a global hub for services and manufacturing.
Download UNIT 1 – Introduction to Indian Economy and Economic Planning Notes
Get simplified revision notes for this unit:
Download Unit 1 Notes PDF
1. Basic Features of the Indian Economy
Some of the key features of the Indian economy include:
Agrarian Base: Agriculture has been the backbone of the Indian economy for decades, employing a large portion of the workforce. However, its contribution to GDP has declined with the growth of industry and services.
Mixed Economy: Both public and private sectors coexist. The government plays a significant role in infrastructure, defense, and core industries, while private enterprises dominate areas like technology and retail.
Developing Economy: India is still overcoming challenges such as poverty, unemployment, and income inequality, despite impressive GDP growth.
Demographic Advantage: With a large young population, India has the potential for a demographic dividend, provided it invests in education and skill development.
Regional Disparities: Economic development varies widely between states, leading to differences in income levels and living standards.
2. Sectoral Structure of the Indian Economy
The Indian economy is divided into three main sectors:
Primary Sector: This includes agriculture, forestry, fishing, and mining. Though its share in GDP has reduced over time, it remains vital for employment.
Secondary Sector: This sector covers manufacturing, construction, and industrial production. It has been growing due to the Make in India initiative and industrial reforms.
Tertiary Sector: This includes services such as IT, banking, tourism, healthcare, and education. The service sector is currently the largest contributor to India’s GDP.
3. Demographic Trends in India
India’s population exceeds 1.4 billion, making it the most populous country in the world. Some key demographic points are:
Young Population: Over 50% of Indians are below 30 years of age.
Urbanization: Rapid migration from rural to urban areas is changing the economic and social landscape.
Literacy Rate: Literacy levels have improved significantly, but there are gaps in quality education and skill development.
Population Growth Rate: Although declining, the growth rate still puts pressure on resources and job creation.
4. Major Economic Challenges
Poverty
Despite growth, a significant portion of the population still lives below the poverty line. Poverty leads to poor health, lack of education, and low productivity.
Unemployment
India faces both open unemployment (people actively seeking jobs but unable to find them) and underemployment (people working in low-paying, unproductive jobs).
Income Inequality
The rich-poor gap is widening, leading to social tensions and reduced economic stability.
Inflation and Price Instability
Rising prices affect purchasing power, especially among low-income groups.
5. Economic Planning in India
Economic planning refers to the government’s efforts to direct economic activities towards desired goals. In India, planning began in 1951 with the First Five-Year Plan, focusing on agriculture and infrastructure.
Objectives of Economic Planning include:
Achieving rapid economic growth
Reducing income inequalities
Promoting self-reliance
Ensuring balanced regional development
Improving living standards
6. Role of NITI Aayog
NITI Aayog (National Institution for Transforming India) replaced the Planning Commission in 2015. Unlike the Planning Commission, NITI Aayog acts as a policy think tank rather than a central authority for fund allocation.
Functions of NITI Aayog:
Fostering cooperative federalism between the Centre and states
Designing long-term strategic policies
Encouraging innovation and entrepreneurship
Monitoring and evaluating government programs
7. Transition from the Planning Commission to NITI Aayog
The Planning Commission (1950–2014) was responsible for formulating and implementing Five-Year Plans. However, it was criticized for being too centralized and inflexible.
The transition to NITI Aayog aimed to:
Give states a greater role in planning and development
Shift from rigid five-year plans to dynamic strategies
Encourage evidence-based policymaking
Focus on sustainable development goals (SDGs)