Chapter No. 3

Introduction to Indian Economy- Its salient Features.

The Economy of India is the ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP)

The independence-era Indian economy (before and a little after 1947) was inspired by the economy of the Soviet Union with socialist practices, large public sectors, high import duties and lesser private participation characterizing it, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people

India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labor force and considerable foreign investments. India is the fourteenth largest exporter and eleventh largest importer in the world. Economic growth rates are projected at around 7.0% for the fiscal year 2011-12

In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small scale industries in large numbers. He also raised the income tax levels at one point to a maximum of 97.5%, a record in the world for non-communist economies. However, the subsequent government policy of Fabian socialism hampered the benefits of the economy, leading to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded reforms.

In response, Prime Minister Narasimha Rao, along with his finance minister Manmohan Singh, initiated the economic liberalisation of 1991. The reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since then, the overall thrust of liberalisation has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labor laws and reducing agricultural subsidies. By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation. This has been accompanied by increases in life expectancy, literacy rates and food security, although the beneficiaries have largely been urban residents.

While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been raised to investment level in 2003 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices would overtake France and Italy by 2020, Germany, UK

and Russia by 2025 and Japan by 2035, making it the third largest economy of the world, behind the US and China. India is often seen by most economists as a rising economic superpower and is believed to play a major role in the global economy in the 21st century

Rank 9th (nominal) / 3rd (PPP)

Currency 1 Indian Rupee (INR) ( ) = 100 Paise

Fiscal year 1 April – 31 March

Trade organizations WTO, SAFTA, G-20 and others

Statistics

GDP $1.846 trillion (nominal: 9th; 2011)

$4.469 trillion (PPP: 3rd; 2011)

GDP growth 8.5% (2010–11)

GDP per capita

$1,527 (nominal: 135th; 2011)

$3,703 (PPP: 127th; 2011)

GDP by sector

agriculture: 18.1%, industry: 26.3%, services: 55.6% (2011 est.)

Major Sectors

Industry and services - India has one of the world's fastest growing automobile industries Industry accounts for 28% of the GDP and employ 14% of the total workforce. In absolute terms, India is 12th in the world in terms of nominal factory output. The Indian industrial sector underwent significant changes as a result of the economic reforms of 1991, which removed import restrictions, brought in foreign competition, led to privatisation of certain public sector industries, liberalised the FDI regime, improved infrastructure and led to an expansion in the production of fast moving consumer goods. Post-liberalisation, the Indian private sector was faced with increasing domestic as well as foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labor and new technology. However, this has also reduced employment generation even by smaller manufacturers who earlier relied on relatively labor-intensive processes.

Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output, providing employment to over 20 million people. As stated in late January, by the then Minister of Textiles, India, Shri Shankersinh

Vaghela, the transformation of the textile industry from a degrading to rapidly developing industry, has become the biggest achievement of the central government. After freeing the industry in 2004–2005 from a number of limitations, primarily financial, the government gave the green light to the flow of massive investment – both domestic and foreign. During the period from 2004 to 2008, total investment amounted to 27 billion dollars. By 2012, still convinced of the government, this figure will reach 38 billion as expected; these investments in 2012 will create an additional sector of more than 17 million jobs. But demand for Indian textiles in world markets continues to fall. According to Union Minister for Commerce and Industries Kamal Nath, only during 2008–2009 fiscal year (which ends 31 March) textile and clothing industry will be forced to cut about 800 thousand new jobs – nearly half of the rate of two million, which will have to go all the export-oriented sectors of Indian economy to soften the impact of the global crisis. Ludhiana produces 90% of woollens in India and is known as the Manchester of India. Tripura has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear.

India is 13th in services output. The services sector provides employment to 23% of the work force and is growing quickly, with a growth rate of 7.5% in 1991–2000, up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 55% in 2007, up from 15% in 1950. Information technology and business process outsourcing are among the fastest growing sectors, having a cumulative growth rate of revenue 33.6% between 1997–98 and 2002–03 and contributing to 25% of the country's total exports in 2007–08. The growth in the IT sector is attributed to increased specialisation, and an availability of a large pool of low cost, highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. The share of the Indian IT industry in the country's GDP increased from 4.8 % in 2005–06 to 7% in 2008. In 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.

Mining forms an important segment of the Indian economy, with the country producing 79 different minerals (excluding fuel and atomic resources) in 2009–10, including iron ore, manganese, mica, bauxite, chromite, limestone, asbestos, fluorite, gypsum, ochre, phosphorite and silica sand. Organised retail supermarkets accounts for 24% of the market as of 2008. Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as "signboard licences" and "anti-hoarding measures" may have to be complied before a store can open doors. There are taxes for moving goods from state to state, and even within states. Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.

Agriculture - India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 15.7% of the GDP in 2009–10, employed 52.1% of the total workforce, and despite a steady decline of its share in the GDP, is still the largest economic sector and a significant piece of the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since the Green Revolution in India.

However, international comparisons reveal the average yield in India is generally 30% to 50% of the highest average yield in the world. Indian states Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Andhra Pradesh, Bihar, West Bengal and Maharashtra are key agricultural contributing states of India.

Banking and finance- The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non-banking financial companies. The unorganised sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans. Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40% of their net credit to priority sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from 5,910 crore (US$1.3 billion) in 1970–71 to 3,830,922 crore (US$842.8 billion) in 2008–09. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 30,590 or 42% in 2007, only 32,270 out of 500,000 villages are covered by scheduled banks.

The following are the Scheduled Banks in India (Public Sector):

State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Overseas Bank Indian Bank Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India

UCO Bank Vijaya Bank

The following are the Scheduled Banks in India (Private Sector):

1. ING Vysya Bank Ltd2. Axis Bank Ltd3. Indusind Bank Ltd4. ICICI Bank Ltd5. South Indian Bank6. HDFC Bank Ltd7. Centurion Bank Ltd8. Bank of Punjab Ltd9. IDBI Bank Ltd10. Jammu & Kashmir Bank Ltd.

The following are the Scheduled Foreign Banks in India:

American Express Bank Ltd. ANZ Gridlays Bank Plc. Bank of America NT & SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Plc Citi Bank N.C. Deutsche Bank A.G. Hongkong and Shanghai Banking Corporation Standard Chartered Bank. The Chase Manhattan Bank Ltd. Dresdner Bank AG.

Energy and power - as of 2010, India imported about 70% of its crude oil requirements an ONGC platform at Mumbai High in the Arabian Sea, one of the few sites of domestic production.

As of 2009, India is the fourth largest producer of electricity and oil products and the fourth largest importer of coal and crude-oil in the world. Coal and oil together account for 66 % of the energy consumption of India. India's oil reserves meet 25% of the country's domestic oil demand. As of 2009, India's total proven oil reserves stood at 775 million metric tonnes while gas reserves stood at 1074 billion cubic metres Oil and natural gas fields are located offshore at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan India is the fourth largest consumer of oil in the world and imported $82.1 billion worth of oil in the first three quarters of 2010, which had an adverse effect on its current account deficit. The petroleum industry in

India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in the oil sector such as Reliance Industries Limited (RIL) which operates the world's largest oil refining complex.

External trade and investmentUntil the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200 million annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians. India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialisation being nascent, consisted predominantly of machinery, raw materials and consumer goods, Since liberalisation, the value of India's international trade has increased sharply,

Employment- Agricultural and allied sectors accounted for about 52.1% of the total workforce in 2009–10. While agriculture has faced stagnation in growth, services have seen a steady growth. Of the total workforce, 7% is in the organised sector, two-thirds of which are in the public sector. The NSSO survey estimated that in 2004–05, 8.3% of the population was unemployed, an increase of 2.2% over 1993 levels, with unemployment

Exports $343 billion (2010 est.)

Export goods petroleum products, precious stones, machinery, iron

and steel, chemicals, vehicles, apparel

Main export

partners

US 12.6%, UAE 12.2%, China 8.1%, Hong Kong 4.1%

(2010)

Imports $443.4 billion (2010 est.)

Import goods crude oil, precious stones, machinery, fertilizer, iron and

steel, chemicals

Main import

partners

China 12.4%, UAE 6.5%, Saudi Arabia 5.8%, US 5.7%,

Australia 4.5% (2010)

FDI stock $35.6 billion (2009–10)

Gross external

debt

$267.1 billion (31 December 2011 est.)

uniformly higher in urban areas and among women. Growth of labor stagnated at around 2% for the decade between 1994–2005, about the same as that for the preceding decade. Avenues for employment generation have been identified in the IT and travel and tourism sectors, which have been experiencing high annual growth rates of above 9%.

Unemployment in India is characterised by chronic (disguised) unemployment. Government schemes that target eradication of both poverty and unemployment (which in recent decades has sent millions of poor and unskilled people into urban areas in search of livelihoods) attempt to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises, reservations in governments, etc. The decline in organised employment due to the decreased role of the public sector after liberalisation has further underlined the need for focusing on better education and has also put political pressure on further reforms. India's labor regulations are heavy even by developing country standards and analysts have urged the government to abolish or modify them in order to make the environment more conducive for employment generation The 11th five-year plan has also identified the need for a congenial environment to be created for employment generation, by reducing the number of permissions and other bureaucratic clearances required Further, inequalities and inadequacies in the education system have been identified as an obstacle preventing the benefits of increased employment opportunities from reaching all sectors of society.

According to the World Bank: India’s labor regulations – among the most restrictive and complex in the world – have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs. Given the country’s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade.

Strengths and Weaknesses of Indian Economy

Strengths

1. sustained growth over a decade2. strong export potential, current a/c deficit low3. healthy forex reserves 4. low external debt5. low inflation regime6. political consensus on reforms7. deepening financial sector8. knowledge base advantage,

1. sustained growth for over a decade

With a GDP growth rate averaging 8 percent over the last decade, India is second only to China as one of the world’s fastest-growing large economies; India’s economic transformation began in 1991. Faced with near bankruptcy, the government started dismantling the “license Raj” that had shackled the private sector by controlling even little

things such as the price of soap. This policy shift unleashed entrepreneurship on a grand scale, a phenomenon that continues to gather momentum. A second factor was the country’s global advantage in information technology and other knowledge-intensive services. Over the last ten years, India has emerged as the world’s No. 1 destination for outsourcing of everything from low-end services such as call canters to high-end work such as pharmaceutical development, data analytics, financial market research and legal services. The third major driver of growth has been a major ramp-up in levels of domestic savings and investment. In the early 1990s, India’s gross capital formation stood at only 24 percent of GDP. Since then, it has increased rapidly and now stands at almost 40 percent of GDP, only slightly smaller than China’s and almost doubles that of every other large economy in the world. 

2. strong export potential

Apart from Agricultural products some of the following sectors also have great export potential.

The astronomical growth of the Indian export sector was led by the following industry -

Information Technology Information Technology Enabled Services Telecommunications hardware Electronics and hardware Pharmaceutical and biotechnology products Consumer durables Textiles Construction machinery Power equipment Food grains Iron and steel Chemicals and fertilizers Leather products Jewellery Plastics products

Exports grew by 18.11% during the 1st quarter of 2007-2008 and the imports shoot up by 34.30% during the same period

3. healthy forex reserves

India's FOREX reserves (excluding Gold and SD` ) stood at $219.75 billion at the end of July ' 07, which is showing steady growth over period of time, which is good sign for an economy.

4. low external debt

India’s external economic debt is low as compare to other growing giants’ nation such as USA, European Union, Japan, Germany, UK, China, Russia and Brazil.

The robust overall growth of export sector of Indian economy led to secondary growth of the following economic parameters On 31 December 2011 India’s external debt was 267,100,000,000 US dollars’ which can be calculated

as 237 US dollars per capita. This is much lower as compared to USA, UK where per capita external debt is 47,568 and 143,009 US dollars respectively. In the list of countries with high external debt India stood at 27th position where. USA is on top with external debt of15,570,789,000,000 dollars, UK, Germany, France and Japan hold 2nd, 3rd and 4th position with external debt of (8,981,000,000,000), (4,713,000,000,000) and (4,698,000,000,000) US dollars respectively, fastest growing nation china also has high external debt compared to India. China is on 18 th spot with external debt of 635,500,000,000 US dollars. Low external debt means low external pressure on economy. Low external debt leads to increase in bargaining power of country also it strengthens the currency of nation.

5. low Inflation regime

India’s inflation levels are low to moderate as compare to the developed nations factors of production are much cheaper as compared to European and western nations. India is well known for cheap labor and other natural resources hence India has good purchasing power due to low inflation regime. That’s why Indian economy is globally on 3rd position in terms of PPP (Purchasing Power Parity)

6. political consensus on reforms

Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization under state monitoring, state intervention at the micro level in all businesses especially in labour and financial markets, a large public sector, business regulation, and central planning.  Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.

A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That low point was the catalyst required to transform the economy through badly needed reforms to unshackle the economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, the economy was opened to trade and investment, private sector enterprise and competition were encouraged and globalisation was slowly embraced. The reforms process continues today and is accepted by all political parties. Today, fascination with India is translating into active consideration of India as a destination for FDI. The A T Kearney study is putting India second most likely destination for FDI in 2005 behind China. It has displaced US to the third position. This is a great leap forward. India was at the 15th position, only a few years back. To quote the A T Kearney Study “India's strong performance among manufacturing and telecom & utility firms was driven largely by their desire to make productivity-enhancing investments in IT, business process outsourcing, research and development, and knowledge management activities”

7. Deepening financial sector

The Indian banking industry is measured as a flourishing and the secure in the banking world. The country’s economy growth rate by over 9 percent since last several years and that has made it regarded as the next economic power in the world. The paper deals with the banking sector reforms and it has been discussed that India’s banking industry is a mixture of public, private and foreign ownerships. The major dominance of commercial banks can be easily found in Indian banking, although the co-operative and regional rural banks have little business segment. Further the paper has discussed an evaluation of banking sector reforms and economic growth of the country since from the globalization and its effects on Indian economy. Competition among financial intermediaries gradually helped the interest rates to decline. Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high price while depositors had incentives to save. It was something between the nominal rate of interest and the expected rate of inflation. Finally the paper deals with conclusion and inflation rates from the different years and regulation of economy and finance of the country through government policies and banking sector reforms.

8. knowledge base advantage

India is country with highest number of English proficient people; also India is nation with large number of youngsters. Most of Indian youth work for Information Technology related services in metro cities. The technological and research and development related works. Indians are also taking lots of KPO jobs under outsourcing from various western countries. So. Indian IT service industry is one of the largest in the world due to knowledge base advantage..

Weaknesses

1. low per capita income

Despite of steady and high economic growth per capita income in India is low. India's per capita income (nominal) is $ 1219, ranked 142nd in the world.  While it’s per capita purchasing power parity (PPP) of US $3,608 is ranked129th. The Planning Commission of India has accepted the Tendulkar Committee report which says that 37% of people in India live below the poverty line BPL). Lack of a market economy & over government regulation and red tape, known as License Raj is the main cause of poverty in India. While other Asian countries like Hong Kong, Taiwan, Singapore and South Korea started with the same poverty level as India after independence, India adopted a socialist centrally planned, closed economy. Fortunately India has started to open its markets since the economic reforms in 1991 which has cut the poverty rate in half since then. Another cause is a high population growth rate, although demographers generally agree that this is a symptom rather than cause of poverty. While services and industry have grown at double digit figures, agriculture growth rate has dropped from 4.8% to 2%. About sixty percent of the population depends on agriculture whereas the contribution of agriculture to the GDP is about eighteen percent.

2. Inequitable distribution of income and problem of poverty

Poverty is widespread in India, with the nation estimated to have a third of the world's poor. According to a 2005 World Bank estimate, 41.6% of the total Indian population falls below the international poverty line of US$ 1.25 a day (PPP, in nominal terms   21.6 a day in urban areas and   14.3 in rural areas) In Economics term poor is the person who has less purchasing power and the rich is one who has more purchasing power. A person with less purchasing power is deeply affected because he cannot afford Goods and services which rich can afford and it’s safe to say without that he cannot changes his life style and standard of living. Poor rich gap can be in different forms some of the fields where the gap exist are Educational, Income, Life style, Housing requirement, food needs are the name of few.

By above description it is clear that is most of the area poor are lagging. From long back poor people have been ignored by the government but ignoring poor’s and their demands is not the solution because with poverty not only poor suffers but country suffers as well. Poverty is one of the big hurdles in the way of Indian Economy. Poor people lives in mostly village area and in cities for the search of job.

Government has done so many attempts for resolving this Gap all the plans some of them was the part of Five year plans and excellent concepts from the highly educated personalities but because of corruption it was not implemented in a way it could be, as a result it is taking so much time if everything would have done properly it could not be worst then today.

Economic inequality: As they cannot afford the higher education people in this class are depend on their physical strength to earn and usually Labour class people works on factory or some other organization. There earnings and there purchasing power is extremely low and they are victim of the inflation in true sense. Lack of education and awareness about the things make them sick because they truly avoid the heath aspects of life or may be because they cannot afford the good stuffs and quality foods

3. Predominance of agriculture.

Agriculture is backbone of Indian Economy, the sector contributes. Agriculture in India has a significant history. Today, India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and fisheries accounted for 16.6% of the GDP in 2009, about 50% of the total workforce. Agriculture is demographically the broadest economic sector and plays a significant role in the overall socio-economic fabric of India. The productivity of Indian farms for the same crop is very low compared to farms in Brazil, the United States, France and other nations. Indian wheat farms, for example, produce about a third of wheat per hectare per year in contrast with wheat farms in France. Similarly, at 44 million hectares, India had the largest farm area under rice production in 2009; yet, the rice farm productivity in India was less than half the rice farm productivity in China. Other food staples productivity in India is similarly low, suggesting a major opportunity for growth and future agricultural prosperity potential in India. Indian total factor productivity growth remains below 2 percent per annum; in contrast, China has shown total factor productivity growths of about 6 percent per annum, even though China too has smallholding farmers. If India could adopt technologies and improve its infrastructure, several studies suggest India could eradicate hunger and malnutrition within India, and be a major source of food for the world. Slow agricultural growth is a concern for policymakers as some two-thirds of India’s people depend on rural employment for a living. Current agricultural practices are neither

economically nor environmentally sustainable and India's yields for many agricultural commodities are low. Poorly maintained irrigation systems and almost universal lack of good extension services are among the factors responsible. Farmers' access to markets is hampered by poor roads, rudimentary market infrastructure, and excessive regulation. Such agricultural practices are not good for economic growth of nation. The industrialization helps economy for high and sustained economic growth as compared to inefficient agricultural practices which are predominant in India.

4. Rapid population growth

The demographics of India are inclusive of the second most populous country in the world, with over 1.21 billion people (2011 census), more than a sixth of the world's population. Already containing 17.5% of the world's population, India is projected to be the world's most populous country by 2025, surpassing China, its population reaching 1.6 billion by 2050. This excess population creates problems of unemployment, poverty and adversely impact on governments efficiency to implement plans for economic development.

5. Unemployment

Poor and weaker sections of society, particularly those who are engaged in subsistence agriculture and low income earning self-employment activities frequently face this situation as they do not get employment round the year. Hence, various approaches are used to measure different dimensions of unemployment in the country.The estimates for 2004-05 varied from 10.8 million (as per usual status - widely referred to as `open unemployment') to 35 million (as per daily status which includes both open unemployment and underemployment). Hence, addressing underemployment along with open unemployment is important for policy initiatives, particularly, from the point of view of `inclusive growth'.As far as the question of `open unemployment' is concerned, it has to be tackled by creating new employment opportunities in the labour market. The issue of underemployment, however, may require a variety of policy measures ranging from creation of new job opportunities to measures related to social security for workers, introducing innovative technology etc. Promoting rural non-farm employment is considered as an important policy measure to address under- employment in the rural areas.Another crucial issue relates to the youth unemployment. Analysis of unemployment data for the year 2004-05 reveals that unemployment rates are very high in urban areas, particularly, in the age group of 15-24 years. Further, female unemployment rate in the age group of 20-24 years is the highest at approximately 27%. Among males, the highest unemployment rate is reported in the 15-19 years age group both in rural as well as urban areas. However, in the 20-24 years age group, male unemployment rates are 12% and 16% in rural and urban areas.

6. Scarcity of capital

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:

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

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).

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.

7. Trade deficit

India reported a trade deficit equivalent to 13906 Million USD in March of 2012. India is leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main trading partners are European Union, The United States, China and UAE . This page includes: India Balance of Trade chart, historical data and new

8. Poor rank (132) in Ease of doing business Index.

In India collection or sequence of forms and procedures required to gain bureaucratic approval for starting up new business or project especially when oppressively complex and time-consuming due to bureaucratic practice of hair splitting or foot dragging, blamed by its practitioners on the system that forces them to follow prescribed procedures to the letter, in short India is country with bureaucratic and hinders or prevents action or decision-making. The ease of doing business index is an index created by the Bank. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the effect of improving these regulations on economic growth is strong. India holds 132 position which is not good for the economic growth of the nation.

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