Why Indian Economy is regarded an Underdeveloped Economy?

Why Indian Economy is regarded an Underdeveloped Economy?

An underdeveloped economy is defined as an economy which has got unexploited natural resources and unutilized human resources. In other words, it is an economy, having a potentiality to grow. An underdeveloped economy shows the following features:

(a) In the underdeveloped countries, natural resources remain unexploited and underexploited due to various reasons. Systematic utilization of natural resources alone can lead to -economic development.

(b) An underdeveloped country is basically a primary producing country, engaging its factors of production to produce only raw materials and foodstuffs. The percentage of population engaged in. agricultural sector is very high (70% in Indian context) and a major part of total national income comes from agriculture and activities allied to agriculture (around 30% in India).

(c) In case of UDCs, the scarcity of capital is both the cause and effect of low productivity and underdevelopment. Due to scarcity of capital, a better technique of production cannot be adopted in India due to undeveloped technology total volume of production and productivity is low. Due to low production and productivity, level of income is less, and consequently, less amount of capital is available to adopt better technique of production. Thus, poverty is both the cause and the consequence.

(d) A chief feature of an UDC like India is its high population pressure. The high birth-rate and low death-rate are responsible for a break-neck rise in Indian population. At present, the annual growth rate of population according to 2001 census stands at 2.13%. This rapid growth of population stands as an obstacle in the smooth development of the economy.

(e) UDCs are characterized by low per capita income and grinding poverty scenario. In India, the per capita income is less than 1/3 of the per capita income of the developed western countries, and, according to the revised estimate of the Planning Commission about 50% of the total populations in India live below the poverty line.

(f) The underdeveloped countries are also characterized by widespread unemployment, underemployment and disguised unemployment. In India large numbers of people engaged in the agricultural sector are underemployed or disguisedly unemployed, apart from the large number of white- colored unemployed, existing in the register of Employment Exchanges.

(g) The underdeveloped economies are also backward in the field of human resources. In these countries, the quality of people as productive agent is very low. There is low labour efficiency, lack of entrepreneurship and economic ignorance. People being illiterate are guided by blind beliefs, customs and traditions. People become fatalists and believe that man's fortune is decided by fate and not by one's own efforts.

(h) In these economies, there is a lack of infrastructural facilities like transport, banking, health, power, education and information technology. People also adopt an outdated technique of production which results in low productivity.

To sum up India as an underdeveloped economy is characterized by abundant, but unexploited natural resources, a high population growth rate, a slow rate of capital formation, an outdated technique of production, and a low standard of living, accompanied by continuous and sustained efforts to raise it through a proper utilization of available natural, human, financial and entrepreneurial resources.

In this context, the term 'economic development has to be defined as launching a measure against the triple enemies of Indian economy, namely, hunger, ignorance and epidemics. The planners of the country have tried to solve these problems and to accelerate the pace of economic development under various Five Year Pla

To Sum Up-

Indian economy is an underdeveloped economy because almost all important features of an underdeveloped economy are still present in Indian economy. Some of these features are discussed below:

1. Low Income:

In India GNP (Gross National Product) per capita was $1,180 in 2009 at current prices, roughly one third of the population is below the poverty line. On world scale, income inequalities between the developed and underdeveloped countries arc very large.

According to the World Hank estimates, in 2009 the average GNP per capita of the high income economies was $38,139 whereas it was $503 in low income underdeveloped countries.

2. Predominance of Agriculture:

In India agriculture and allied sectors contribute nearly 14.2 percent of Gross Domestic Product (GDP) according to the 2010-11 estimates released by the Central Statistics Office (CSO). Moreover, in India agriculture provides employment to around .50 per cent of the workforce.

The share of income in agriculture is however, considerably less than the share of employment in agriculture which clearly reflects the relatively low productivity per labour unit in the agricultural sector.

3. Rapid Population Growth Rate and High Dependency Ratio:

High population growth rate is also an indicator of underdevelopment. India’s population growth rate was 1.93% per annum and 21.34 % per decade during 1991-2001, which is still very high as compared to developed economies. Dependency ratio refers to ratio of dependent population (non-working) to total population. In India dependency ratio is around 60% which is very high. This is because of high birth rate and social circumstances.

4. Mass Poverty:

According to United Nations Development Programme’s (IJNDP) Global Human Development index 2011. India is ranked 134th among 187 countries. The report says 53 per cent of Indians suffer from multidimensional poverty. The Planning Commission released the second India Human Development Report (HDR) 2011.

The report claims that poverty, unemployment and child labour are declining. According to this report the absolute number of the poor (27 per cent) stood at 302 million as compared to 320 million in 1973. Poverty is widespread in the underdeveloped countries, liven though major progress has been registered over the past 25 years, the absolute number of poor has in fact increased.

5. Unemployment and Underemployment:

Unemployment is a phenomenon of all economies whether developed or underdeveloped. But nature and degree of unemployment is different in developed and underdeveloped economies.

In developed economics most of the unemployment is cyclical which arises because of fluctuations in business cycles. In underdeveloped economies like India, chronic unemployment is found which results from the structural defects in the economy.

Moreover, underemployment is widespread in underdeveloped countries. Underemployment is a condition in which a person is getting work but not according to his/her capacity and qualifications.

The 64th round (2007-2008) of NSSO survey on employment- unemployment indicates a creation of 4 million work opportunities between 2004-05 and 2007- 08. The Eleventh Five Year Plan aims at generating 58 million work opportunities in twenty- one high growth sector.

6. Inequality:

Inequality in distribution of income and wealth is found in every country but this is wider in underdeveloped economies. In India bottom 40% of rural population possess only 5% of rural assets while 8% top households possess 46% of total rural assets. This disparity is more intensive in urban areas.

7. Scarcity of Capital:

Capital is considered as the most important factor in the development of an economy. In underdeveloped economies like India, capital availability per person is very low which results in low productivity and low per capita income. Low per capita income again results in low savings, low investment and low capital formation.

Thus Underdeveloped Countries (UDCs) are caught in the grip of vicious circle of poverty. Lack of capital does not allow an economy to introduce the latest technologies. Thus, economy becomes technologically backward and internationally in competitive.

The CSO’s Quick Estimates for 2009-10 placed gross domestic savings at 33.7 per cent of the GDP at current market prices. With private-sector savings more or less static, ii was the savings of the public sector that went up from a revised level of 0.5 per cent in 2008-09 to 2.1 per cent in 2009-10. In the investment sphere the ratio of gross investment came down to around 36.5 per cent in 2009-10 from 38 per cent in 2007-08.

8. Low Level of human Development:

Human Development Index (IIDI) constructed by United Nations Development Programme (UNDP) has become an important indicator of development. IIDI is a composite index of three important parameters of development- education health and income. Every year, in Human Development Report (HDR) value of IIDI is calculated for each country and then they are ranked and classified into three categories high, medium and low human development countries.

According to the UNDP Global Human Development Index (IIDI) 2011. India is ranked 134th among 187 countries.

9. Balance of Payments (BoP):

BoP is the systematic record of all economic transactions like trade of goods, trade of services, unilateral transfers, foreign investment, etc. between a country and rest of the world. BoP of a country is also an indicator of development or underdevelopment of the country.

BoP of UDCs like India shows that these countries export primary (agricultural) products and raw materials and import final products and technologies from developed countries.

They invite foreign capital to fill their investment deficiency. India’s BoP is generally unfavorable i.e., it faces deficit. To fill this deficit it has to borrow from other countries and international organizations like IMF, World Bank, ADB, etc. In lieu of loans, these organizations interfere in important policy matters and impose their terms and conditions.

10. Social Peculiarities:

High illiteracy rate, male dominated society, joint family system, fatalism, lack of entrepreneurship, casteism, communalism, widespread child labor, etc. are some characteristics of Indian society which distinguish it from developed societies.

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