INDIAN ECONOMY
Indian economy is the Seventh largest economy of the world. Being one of the top listed
countries. In terms of industrialization and economic growth, India holds a robust
position with an average growth rate of 7% approximately.
FEATURES OF INDIAN ECONOMY
Strengths of Indian Economy
1. India has a mixed economy
Indian economy is a typical example of mixed economy. On one side fundamental
and heavy industrial units are being operated under the public sector, while, due to
the liberalization of the economy, the private sector has gained importance. This
makes it a perfect model for public – private partnership.
2. Agriculture
Agriculture being the maximum pursued occupation in India, plays an important
role in its economy. Around 60% of the people depends and 17% of our GDP is
contributed by the agricultural sector. Green revolution, evergreen revolution and
bio technology have made agriculture self-sufficient and also surplus production.
The export of agricultural products such as fruits, spices, vegetables, vegetable oils,
tobacco, animal skin, etc. also add to forex earning through international trading.
3. An Emerging market
India emerged as vibrant economy sustaining stable GDP growth rate even in the
midst of global downtrend. This has attracted significant foreign capital through
FDI and FII. India has a high potential for prospective growth also makes it an
emerging market for the world.
4. Emerging Economy
Emerging as a top economic giant among the world economy, India bags the
seventh position in terms of nominal Gross Domestic Product and third in terms of

Purchasing Power Parity. As a result of rapid economic growth Indian economy has
a place among the G20 countries.
5. Fast Growing Economy
India’s economy is well known for high and sustained growth and emerged as
world’s fastest growing economy in the year 2016-17 with the growth rate of 7.1% in
GDP next to People’s Republic of China.
6. Fast growing Service Sector
The service sector, contributes a lion’s share of the GDP in India. There has been a
high-rise growth in the technical sectors like Information Technology, BPO etc.
These sectors have contributed to the growth of the economy. These emerging
service sectors have helped the country go global and helped in spreading its
branches around the world.
7. Large Domestic consumption
With the faster growth rate in the economy the standard of living has improved a
lot resulted in rapid increase in domestic consumption in the country. The standard
of living has considerably improved and life style has changed.
8. Rapid growth of Urban areas
Urbanization is a key ingredient of the growth of any economy. There has been a
rapid growth of urban areas in India after independence. Improved connectivity in
transport and communication, education and health have speeded up the pace of
urbanization.
9. Stable Macro economy
The Indian economy has been projected and considered as one of the most stable
economies of the world. The Economic survey represents the Indian economy to be
a “heaven of; macroeconomic stability, resilience and optimism. Also predict 8% of
GDP over the years with actual growth turning out to be a little less (7.6%). This is a
clear indication of a stable macroeconomic growth.

10. Demographic dividend
The human capital of India is young, means India is a pride owner of the maximum
percentage of youth. The young population is not only motivated but skilled and
trained enough to maximize the growth. Thus, human capital plays a key role in
maximizing the growth prospects in the country. Also, this has invited foreign
investments to the country and outsourcing opportunities too.
Weakness of Indian Economy
1. Large Population
India stands second in terms of size of population next to China and our country is
likely to overtake china in near future. Population growth rate of India is very high
and this is always a hurdle to growth rate. The population growth rate in India is as
high as 1.7 per 1000. The annual addition of population equals the total population
of Australia.
2. Inequality and poverty
There exists a huge economic disparity in the Indian economy. The proportion of
income and assets owned by top 10% of Indians goes on increasing. This has led to
an increase in the poverty level in the society and still a higher percentage of
individuals are living Below Poverty Line (BPL). As a result of unequal distribution
of the rich becomes richer and poor becomes poorer.
3. Increasing Prices of Essential Goods
Even though there has been a constant growth in the GDP and growth
opportunities in the Indian economy, there have been steady increase in the prices
of essential goods. The continuous rise in prices erodes the purchasing power and
adversely affects the poor people, whose income is not protected.
4. Weak Infrastructure
Though there has been a gradual improvement in the infrastructural development
in the past few decades, there is still a scarcity of the basic infrastructure like
power, transport, storage etc.

5. Inadequate Employment generation
With growing youth population, there is a huge need of the employment
opportunities. The growth in production is not accompanied by creation of job. The
Indian economy is characterized by ‘jobless growth’.
6. Outdated technology
The level of technology in agriculture and small-scale industries is still outdated
and obsolete.
DEMOGRAPHIC PROFILE OF INDIA
Scientific study of the characteristics of population is known as Demography. The
various aspects of demographic trends in India are:
1. Size of population
2. Rate of growth
3. Birth and death rates
4. Density of population
5. Sex-ratio
6. Life-expectancy at birth
7. Literacy ratio
1. Size of Population
Over the period of years India has quadrupled its population size. In terms of, size
of population, India ranks 2nd in the world after China. India has only about 2.4% of
the world’s geographical area and contributes less than 1.2% of the world’s income,
but accommodates about 17.5% of the world’s population. In other words, every 6th
person in the world is an Indian. Some of the states in India have larger population
than many countries in the world.
Census year population in crores Average annual growth rate
1911 25.21 0.56
2011 121.02 1.66
2. Rate of growth
The negative growth during 1911-21 was due to rapid and frequent occurrence of
epidemics like cholera, plague and influenza and also famines. The year 1921 is

known as the ‘Year of Great Divide’ for India’s population as population starts
increasing. During 1951, population growth rate has come down from 1.33% to
1.25%. Hence it is known as ‘Year of Small divide’. In 1961, population of India
started increasing at the rate of 1.96% i.e, 2%. Hence 1961 is known as ‘Year of
Population Explosion’. In the year 2001, the Population of India crossed one billion
mark. The 2011 census reveals growth of youth population which is described as
‘demographic transition’.
3. Birth rate and death rate
Crude Birth rate: The number of births per thousand of population. Crude birth
rates of India declined from 39.9 in 1951 to 27.4. in 2011. Kerala has the lowest
birth rate (14.7) and Uttar Pradesh has the highest birth rate (29.5).
Crude Death rate: The number of deaths per thousand of population. The death
rate has declined from 27.4 in 1951 to 7.1 in 2011. West Bengal has the lowest death
rate (6.3) and Orissa (9.2) has the highest. Among States Bihar has the highest
decadal (2001-11) growth rate of population, while Kerala has the lowest growth
rate. The four states Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh called
BIMARU states have very high population.
4. Density of population
It refers to the average number of persons residing per square kilometre. It
represents the man- land ratio. As the total land area remains the same, an increase
in population causes density of population to rise. Density of population=Total
population/Land area of the region
Year Density of population
(No. of persons per sq. km)
1951 117
2001 325
2011 382
Thus, the pressure of population on land has been rising. Kerala, West Bengal,
Bihar and Uttar Pradesh have density higher than the India’s average density.
Bihar is the most densely populated state in the country with 1,102 persons living
per sq.km followed by West Bengal with 880. Arunachal Pradesh has low density of
population of only 17 persons.

5. Sex ratio
The number of females per 1,000 males. It is an important indicator to measure the
extent of prevailing equity between males and females at a given point of time.
Census year Sex ratio
(Number of females per 1000 males)
1951 946
2001 933
2011 940
In India, the sex ratio is more favorable to males than to females. In Kerala, the
adult sex ratio is 1084 as in 2011. The recent census (2011) shows that there has
been a marginal increase in sex ratio. Haryana has the lowest sex ratio of 877
(2011) among other states, while Kerala provides better status to women as
compared to other States with 1084 females per 1000 males
6. Life expectancy at birth
The mean expectation of life at birth. Life expectancy has improved over the years.
Life expectancy is low when death rate is high and / or instances of early death are
high. On the other hand, life expectancy is high when death rate is low and/ or
instances of early death are low.
Year Male Female Overall
1951 32.5 31.7 32.1
1991 58.6 59.0 58.7
2001 61.6 63.3 62.5
2011 62.6 64.2 63.5
7. Literacy ratio
The number of literates as a percentage of the total population. In
1951, only one-fourth of the males and one-twelfth of the females were literates.
Thus, on an average, only one-sixth of the people of the country were literates. In
2011, 82% of males and 65.5% of females were literates giving an overall literacy
rate of 74.04% (2011). When compared to other developed countries and even Sri
Lanka this rate is very low. Kerala has the highest literacy ratio (92%) followed by
Goa (82%), Himachal

Pradesh (76%), Maharastra (75%) and Tamilnadu (74%). Bihar has the lowest
literacy ratio (53%) in 2011.
Census
Year Literate persons Males Females
1951 18.3 27.2 8.9
2001 64.8 75.3 53.7
2011 74.04 82.1 65.5
NATIONAL INCOME
National Income provides a comprehensive measure of the economic activities of a
nation. It denotes the country’s purchasing power. The growth of an economy is
measured by the rate at which its real national income grows over time. National
income thus serves as an instrument of economic planning and one of the most
significant macroeconomic variables. Nobel laureate Simon Kuznets first introduced
the concept of national income. National Income means the total money value of all
final goods and services produced in a country during a particular period of time (one
year).
Basic concepts of national income
1. Gross Domestic Product (GDP)
GDP is the total market value of final goods and services produced within the
country during a year. This is calculated at market prices and is known as GDP at
market prices.
GDP by expenditure method at market prices = C + I + G + (X – M)
C – Consumption goods;
I – Investment goods;
G – Government purchases;
X – Exports;
M – Imports
(X – M) is net export which can be positive or negative.

2. Net Domestic Product (NDP)
NDP is the value of net output of the economy during the year. Some of the
country’s capital equipment wears out or becomes outdated each year during the
production process.
Net Domestic Product = GDP – Depreciation.
3. Gross National Product (GNP)
GNP is the total measure of the flow of final goods and services at market value
resulting from current production in a country during a year, including net income
from abroad.
GNP includes five types of final goods and services:
1. Value of final consumer goods and services produced in a year to satisfy the
immediate wants of the people which is referred to as consumption (C).
2. Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods which is called as gross investment (I).
3. Goods and services produced or purchased by the government which is denoted
by (G).
4. Net exports of goods and services, i.e., the difference between value of
exports and imports of goods and services, known as (X-M) ; Net factor
incomes from abroad which refers to the difference between factor incomes
(wage, interest, profits ) received from abroad by normal residents of India and
factor incomes paid to the foreign residents for factor services rendered by
them in the domestic territory in India (R-P);
5. GNP at market prices means the gross value of final goods and services
produced annually in a country plus net factor income from abroad (C + I + G +
(X-M) + (R-P)).
GNP at Market Prices = GDP at Market Prices + Net Factor income from
Abroad

4. Net National Product at Market price
Net National Product refers to the value of the net output of the economy during
the year. NNP is obtained by deducting the value of depreciation, or replacement
allowance of the capital assets from the GNP.
NNP = GNP – depreciation allowance
5. NNP at Factor cost
NNP refers to the market value of output. Whereas NNP at factor cost is the total of
income payment made to factors of production. Thus, from the money value of
NNP at market price, we deduct the amount of indirect taxes and add subsidies to
arrive at the net national income at factor cost.
NNP at factor cost = NNP at Market prices – Indirect taxes + Subsidies.
6. Personal Income
Personal income is the total income received by the individuals of a country from
all sources before payment of direct taxes in a year. Personal income is never equal
to the national income, because the former includes the transfer payments whereas
they are not included in national income. Personal income is derived from national
income by deducting undistributed corporate profit, and employees’ contributions
to social security schemes and adding transfer payment.
NNP = GNP – depreciation allowance.
Personal Income = National Income – (Social Security Contribution and
undistributed corporate profits) +Transfer payments
7. Disposable Income
Disposable Income is also known as Disposable personal income. It is the
individual’s income after the payment of income tax. This is the amount available
for households for consumption.
8. Per Capita Income
The average income of a person of a country in a particular year is called Per Capita
Income. Per capita income is obtained by dividing national income by population
Per Capita income =National Income/Population

9. Real Income
Nominal income is national income expressed in terms of a general price level of a
particular year in other words, real income is the buying power of nominal income.
National income is the final value of goods and services produced and expressed in
terms of money at current prices. But it does not indicate the real state of the
economy.
The real income is derived as follows:
Disposable Income = Personal income – Direct Tax.
As the entire disposable income is not spent on consumption,
Disposal income = consumption + saving.
Per Capita income =National Income/Population
National Income at constant price =National Income at current price ÷ P1 / P0
P1 – Price index during current year;
P0 – Price index during base year
10. GDP deflator
GDP deflator is an index of price changes of goods and services included in GDP. It
is a price index which is calculated by dividing the nominal GDP in a given year by
the real GDP for the same year and multiplying it by 100.
GDP deflator =Nominal GDP/Real GDP*100
Methods of Measuring National Income
Three methods that are used to measure national income.
1. Production or value-added method
2. Income method or factor earning method
3. Expenditure method
Output = Income = Expenditure
1. Product Method
Product method measures the output of the country. It is also called inventory
method. Under this method, the gross value of output from different sectors like
agriculture, industry, trade and commerce, etc., is obtained for the entire economy
during a year. The value obtained is actually the GNP at market prices. Care must

be taken to avoid double counting. The value of the final product is derived by the
summation of all the values added in the productive process. To avoid double
counting, either the value of the final output should be taken into the estimate of
GNP or the sum of values added should be taken.
In India, the gross value of the farm output is obtained as follows:
1. Total production of 64 agriculture commodities is estimated. The output of
each crop is measured by multiplying the area sown by the average yield per
hectare.
2. The total output of each commodity is valued at market prices.
3. The aggregate value of total output of these 64 commodities is taken to
measure the gross value of agricultural output.
4. The net value of the agricultural output is measured by making deductions for
the cost of seed, manures and fertilisers, market charges, repairs and
depreciation from the gross value.
Precautions
The product method is followed in the underdeveloped countries, but it is less
reliable because the margin of error in this method is large. In India, this method is
applied to agriculture, mining and manufacturing, including handicrafts.
1. Double counting is to be avoided under value added method. Any commodity
which is either raw material or intermediate good for the final production
should not be included.
2. The value of output used for self-consumption should be counted while
measuring national income.
3. In the case of durable goods, sale and purchase of second hand goods should
not be included.
2. Income Method (Factor Earning Method)
This method approaches national income from the distribution side. Under this
method, national income is calculated by adding up all the incomes generated in
the course of producing national product.

Steps involved
1. The enterprises are classified into various industrial groups.
2. Factor incomes are grouped under labour income, capital income and mixed
income.
1. Labour income – Wages and salaries, fringe benefits, employer’s
contribution to social security.
2. Capital income – Profit, interest, dividend and royalty
3. Mixed income – Farming, sole proprietorship and other professions.
3. National income is calculated as domestic factor income plus net factor
incomes from abroad.
In short,
Y = w + r + i + π + (R-P)
w = wages, r = rent, i = interest, π = profits, R = Exports and P = Imports
This method is adopted for estimating the contributions of the remaining sectors,
viz., small enterprises, banking and insurance, commerce and transport,
professions, liberal arts and domestic service, public authorities, house property
and foreign sector transaction.
Precautions
Items not to be included
1. Transfer payments are not to be included in estimation of national income as
these payments are not received for any services provided in the current year
such as pension, social insurance etc.
2. The receipts from the sale of second hand goods should not be treated as part of
national income as they do not create new flow of goods or services in the
current year.
3. Windfall gains such as lotteries are also not to be included as they do not
represent receipts from any current productive activity.
4. Corporate profit tax should not be separately included as it has been already
included as a part of company profit.

Items to be included
1. Imputed value of rent for self-occupied houses or offices is to be included.
2. Imputed value of services provided by owners of production units (family
labour) is to be included.
3. The Expenditure Method (Outlay method)
The total expenditure incurred by the society in a particular year is added together.
To calculate the expenditure of a society, it includes personal consumption
expenditure, net domestic investment, government expenditure on consumption as
well as capital goods and net exports. Symbolically,
GNP = C + I + G + (X-M)
C – Private consumption expenditure
I – Private Investment Expenditure
G – Government expenditure
X-M = Net exports
Precautions
1. Second hand goods: The expenditure made on second hand goods should not be
included.
2. Purchase of shares and bonds: Expenditures on purchase of old shares and
bonds in the secondary market should not be included.
3. Transfer payments: Expenditures towards payment incurred by the government
like old age pension should not be included.
4. Expenditure on intermediate goods: Expenditure on seeds and fertilizers by
farmers, cotton and yarn by textile industries are not to be included to avoid double
counting. That is only expenditure on final products are to be included.
Importance of National Income Analysis
National income is of great importance for the economy of a country. The national
income is regarded as accounts of the economy, which are known as social accounts. It
enables us

1. To know the relative importance of the various sectors of the economy and their
contribution towards national income; from the calculation of national income,
we could find how income is produced, how it is distributed, how much is spent,
saved or taxed.
2. To formulate the national policies such as monetary policy, fiscal policy and
other policies; the proper measures can be adopted to bring the economy to the
right path with the help of collecting national income data.
3. To formulate planning and evaluate plan progress; it is essential that the data
pertaining to a country’s gross income, output, saving and consumption from
different sources should be available for economic planning.
4. To build economic models both in short – run and long – run.
5. To make international comparison, inter – regional comparison and inter –
temporal comparison of growth of the economy during different periods.
6. To know a country’s per capita income which reflects the economic welfare of the
country (Provided income is equally distributed)
7. To know the distribution of income for various factors of production in the
country.
8. To arrive at many macroeconomic variables namely, Tax – GDP ratio, Current
Account Deficit – GDP ratio, Fiscal Deficit – GDP ratio, Debt – GDP ratio etc.
Difficulties in Measuring National Income
1. Transfer payments
Government makes payments in the form of pensions, unemployment allowance,
subsidies, etc. These are government expenditure. But they are not included in the
national income. Because they are paid without adding anything to the production
processes. During a year, Interest on national debt is also considered transfer
payments because it is paid by the government to individuals and firms on their
past savings without any productive work.
2. Difficulties in assessing depreciation allowance
The deduction of depreciation allowances, accidental damages, repair and
replacement charges from the national income is not an easy task. It requires high
degree of judgment to assess the depreciation allowance and other charges.

3. Unpaid services
A housewife renders a number of useful services like preparation of meals, serving,
tailoring, mending, washing, cleaning, bringing up children, etc. She is not paid for
them and her services are not directly included in national income. Such services
performed by paid servants are included in national income. Similarly, there are a
number of goods and services which are difficult to be assessed in money terms for
the reason stated above, such as rendering services to their friends, painting,
singing, dancing, etc.
4. Income from illegal activities
Income earned through illegal activities like gambling, smuggling, illicit extraction
of liquor, etc., is not included in national income. Such activities have value and
satisfy the wants of the people but they are not considered as productive from the
point of view of society.
5. Production for self-consumption and changing price
Farmers keep a large portion of food and other goods produced on the farm for
self-consumption. The problem is whether that part of the produce which is not
sold in the market can be included in national income or not. National income by
product method is measured by the value of final goods and services at current
market prices. But prices do not remain stable. They rise or fall. To solve this
problem, economists calculate the real national income at a constant price level by
the consumer price index.
6. Capital Gains
The problem also arises with regard to capital gains. Capital gains arise when a
capital asset such as a house, other property, stocks or shares, etc. is sold at higher
price than was paid for it at the time of purchase. Capital gains are excluded from
national income.
7. Statistical problems
There are statistical problems, too. Great care is required to avoid double counting.
Statistical data may not be perfectly reliable, when they are compiled from
numerous sources. Skill and efficiency of the statistical staff and cooperation of
people at large are also equally important in estimating national income. The
following are the some of the statistical problems:

1. Accurate and reliable data are not adequate, as farm output in the subsistence
sector is not completely informed. In animal husbandry, there are no authentic
production data available.
2. Different languages, customs, etc., also create problems in computing
estimates.
3. People in India are in different to the official inquiries. They are in most cases
non cooperative also.
4. Most of the statistical staff are untrained and inefficient.
CAPITAL FORMATION
Capital formation refers to the net addition made to the existing stock of capital in a
given period of time. The meaning of capital formation is that society does not apply
the whole of its productive activity to the needs and desires of immediate consumption
but directs a part of it to make capital goods, tools and instrument, machines and
transport facilities plant and equipment—all the various forms of real capital that can
so greatly increase the efficiency of productive effort.
Significance of Capital Formation in Economic Development:
1. Formation of Sound Infra-Structures:
The foremost significance of capital accumulation specially in its initial stages is that it
promotes the establishment of social overheads in the poor country as these countries
need these infra-structures at a priority level. In this way, capital accumulation goes a
long way in the development of basic capital goods in under developed production.
2. Use of Round-about Methods of Production:
In a backward country, process of capital formation makes possible the use of
roundabout or complex methods of production which makes the division in different
stages on the basis of modern techniques and production process leads to
specialization. This further leads to rapid growth in production.

3. Maximum Utilisation of Natural Resources:
In under developed countries, there is an increase in the capacity of risk taking by
capital formation by which fresh natural resources are made available. It is made
possible through proper and thoughtful exploitation.
4. Proper Use of Human Capital Formation:
Capital formation plays an extraordinary role in the qualitative development of human
resources. Human capital formation depends on the people’s education, training,
health, social and economic security, freedom and welfare facilities for which sufficient
capital in needed. Labour force needs up-to-date implements and instruments is
sufficient quantity so that with the increase of population there will be optimum
increase in production and increased labour is easily absorbed.
5. Improvement in Technology:
In under developed countries, capital formation creates overhead capital and necessary
environment for economic development. This helps to instigate technical progress
which make impossible the use of more capital in the field of production and with
increase of capital in production, the abstract form of capital changes
6. High Rate of Economic Growth:
The higher rate of capital formation in a country means the higher rate of economic
growth. Generally, the rate of capital formation or accumulation is very low in
comparison to advanced countries. In the case of poor and under developed countries,
the rate of capital formation varies between one percent to five percent while in the
latter’s case, it even exceeds to 20 percent.
7. Agricultural and Industrial Development:
Modern agricultural and industrial development needs adequate funds for adoption of
latest mechanised techniques, input, and setting of different heavy or light industries.
Without sufficient capital at their disposal, leads to lower rate of development thus,
capital formation. In fact, the development of these both sectors are not possible
without capital accumulation.

8. Increase in National Income:
Capital formation improves the conditions and methods for the production of a
country. Hence, there is much increase in national income and per capital income. This
leads to increase in quantity of production which leads to again rise in national income.
The rate of growth and quantity of national income necessarily depends on the rate of
capital formation. So, increase in national income is possible only by the proper
adoption of different means of production and productive use of same.
9. Expansion of Economic Activities:
Increase in the rate of capital formation, productivity increases quickly and available
capital is utilized in more profitable and extensive way. In this way, complicated
techniques and methods are utilized for the economy. The expansion of economy
activities. Capital formation increases investment which effects economic development
in two ways. Firstly, it increases the per capita income and enhances the purchasing
power which, in turn, creates more effective demand. Secondly, investment leads to an
increase in production. In this way, by capital formation, economic activities can be
expanded in under developed countries, which in fact, helps to get rid of poverty and
attain economic development in the economy.
10. Less Dependence on Foreign Capital:
In under developed countries, process of capital formation increases dependence on
internal resources and domestic savings by which dependence on foreign capital is
declined. Economic development leaves burden of foreign capital, hence to give
interest on foreign capital and bear expenses of foreign scientists, country has to be
burdened by improper taxation to the public. This gives a setback to internal savings.
Thus, by the way of capital formation, a country can attain self-sufficiency and can get
rid of foreign capital’s dependence.
11. Increase in Economic Welfare:
By the increase in rate of capital formation, public is getting more facilities. As a result,
common man is more benefited economically. Capital formation leads to unexpected
increase in their productivity and income and this improves their standard of living.
This leads to improvement and enhancement in the chances of work. This helps to raise

the welfare of the people in general. Therefore, capital formation is the principal
solution to the complex problems of poor countries.
Process of Capital Formation:
Capital formation or accumulation undergoes three main stages:
1. Creation of Saving:
The creation of saving is the first stage of capital formation. It means that there must
be an increase in the volume of real savings, so that the sources may be used for the
production of consumption purposes and further may be released for other purposes.
Therefore, for capital formation, some current consumption has to be sacrificed for
obtaining a larger part of the flow of consumer goods in the near future.
2. Mobilisation of Saving:
The next process of saving is that it must be mobilised by converting into investible
funds. For this purpose, the existence of banking and other financial institutions is
must. Banking facilities give considerable help to promote high rate of mobilisation and
channelization of saving. In brief, sound and efficient banking system enables investors
to invest more and more.
3. Investment of Saving:
The final stage is the investment of saving into capital goods. It needs a class of
efficient, dynamic, daring and skilled entrepreneurs. An able and efficient entrepreneur
is always ready to make investments for the production of capital goods. In short, both
saving and investment are crucial for capital accumulation.
NEW ECONOMIC POLICY
New Economic Policy refers to economic liberalisation, deregulation of market for
private and foreign players and reduction of taxes to expand the economic wings of the
country. Manmohan Singh considered as father of new economic policy of India and
introduced on July 24 1991.

REASON
1. Severe balance of payment crisis
2. Due to gulf war oil prices rises sharply
3. Sharp decline of private remittances
4. Inflation peak at nearly 17%
5. Gross fiscal deficit of central government reaches 8.4% of gdp
6. Foreign exchange rate is declined.
MAIN OBJECTIVES
1. To plunge Indian economy into the arena of globalisation and to give it a new
thurst on market orientation.
2. To bring down the rate of inflation.
3. Intended to move towards high economic growth rate and to build sufficient
foreign exchange reserves.
4. Wanted to achieve economic stabilisation and convert economy into market
economy by removing all kinds of unnecessary restrictions.
5. Wanted to permit international flow of goods, services, capital, human resources
and technology, without many restrictions.
IMF
Provide loans for structural readjustment
MEASURES
1. Dereservation of industries
The industry reserved for central government by the IPR 1956 were cut down to
only eight. At present only atomic and railways which are partially or fully
reserved for central government.
2. Delicensing of the industries
Except five industries all other industries are delicensed the industries are
1. Aerospace and defence related electronics
2. Gunpowder, industrial explosives and detonating fuse
3. Dangerous chemicals
4. Tobbacco, cigarette and related products
5. Alcoholic drinks

3. Abolition of MRTP act 1969 and later competition commission act was passed on
2002.
4. Promotion to foreign investment, the FDI started in 1991 and foreign
institutional investment started in 1994.
5. FERA replaced by FEMA and came in to effect 2000-01
6. Location of industries
7. Non-Polluting Industries might be setup anywhere.
8. Polluting industries to be setup atleast 25kms away from the million cities.
9. Compulsion of phased production abolished and private firms could go for
producing as many goods and models simultaneously.
10.Compulsion to convert loans into shares abolished
11. Open competition encouraged.
12. Partial convertibility of Indian currency.
NITI AAYOG
National Institution for Transforming India was formed on January 1, 2015 through a
Union Cabinet resolution. NITI Aayog is a policy think tank of the Government of
India. It replaced the Planning Commission from 13th August, 2014. The Prime
Minister is the Chairperson of NITI Aayog and Union Ministers will be Ex-officio
members. The Vice- Chairman of the NITI Aayog is the functional head and the first
Vice Chairman was Dr. Rajiv Kumar.
Functions of NITI Aayog
1. Cooperative and Competitive Federalism: To enable the States to have active
participation in the formulation of national policy.
2. Shared National Agenda: To evolve a shared vision of national development
priorities and strategies with the active involvement of States.
3. Decentralized Planning: To restructure the planning process into a bottom-up
model.
4. Vision and Scenario Planning: To design medium and long-term strategic
frameworks towards India’s future.
5. Network of Expertise: To mainstream external ideas and expertise into
government policies and programmes through a collective participation.

6. Harmonization: To facilitate harmonization of actions across different layers of
government, especially when involving cross-cutting and overlapping issues across
multiple sectors; through communication, coordination, collaboration and
convergence amongst all the stakeholders.
7. Conflict Resolution: To provide platform for mutual consensus to intersectoral,
inter departmental, inter-state as well as centre-state issues for all speedy execution
of the government programmes.
8. Coordinating Interface with the World: It will act nodal point to harness
global expertise and resources coming from International organizations for India’s
developmental process.
9. Internal Consultancy: It provides internal consultancy to Central and State
governments on policy and programmes.
10. Capacity Building: It enables to provide capacity building and technology upgradation across government, benchmarking with latest global trends and
providing managerial and technical know-how.
11. Monitoring and Evaluation: It will monitor the implementation of policies and
progammes and evaluate the impacts.
Structure of the NITI Aayog
The composition of the NITI Aayog is as follows:
1. Chairperson: The Prime Minister of India
2. Governing Council: It comprises the Chief Ministers of all the States, Chief
Ministers of Union Territories with Legislatures (i.e., Delhi and Puducherry) and
Lt. Governors of other Union Territories.
3. Regional Councils: These are formed to address specific issues and contingencies
impacting more than one state or a region. These are formed for a specified
tenure. These are convened by the Prime Minister and comprises of the Chief
Ministers of States and Lt. Governors of Union Territories in the region. These are
chaired by the Chairperson of the NITI Aayog or his nominee.
4. Special Invitees: Experts, specialists and practitioners with relevant domain
knowledge as special invitees nominated by the Prime Minister.
5. Full-time Organisational Framework: It comprises, in addition to the Prime
Minister as the Chairperson:

a. Vice-Chairperson: He is appointed by the Prime Minister. He enjoys the rank
of a Cabinet Minister.
b. Members: Full-time. They enjoy the rank of a Minister of State.
c. Part-time Members: Maximum of 2, from leading universities, research
organisations and other relevant institutions in an ex-officio capacity. Parttime members would be on a rotation.
d. Ex-Officio Members: Maximum of 4 members of the Union Council of
Ministers to be nominated by the Prime Minister.
e. Chief Executive Officer: He is appointed by the Prime Minister for a fixed
tenure, in the rank of Secretary to the Government of India.
f. Secretariat: As deemed necessary.
SPECIALISED WINGS
NITI Aayog houses a number of specialised wings, including 5:
1. Research Wing: It develops in-house sectoral expertise as a dedicated think tank
of top-notch domain experts, specialists and scholars.
2. Consultancy Wing: It provides a market-place of whetted panels of expertise and
funding, for the Central and State Governments to tap into matching their
requirements with solution providers, public and private, national and
international. By playing match-maker instead of providing the entire service itself,
NITI Aayog is able to focus its resources on priority matters, providing guidance
and an overall quality check to the rest.
3. Team India Wing: It comprises of the representatives from every State and
Ministry and serves as a permanent platform for national collaboration. Each
representative:
1. Ensures that every State/Ministry has a continuous voice and stake in the NITI
Aayog.
2. Establishes a direct communication channel between the State/Ministry and
NITI Aayog for all development related matters, as the dedicated liaison
interface.

The NITI Aayog is based on the following seven pillars of effective governance:
1. Pro-people agenda that fulfils the aspirations of the society as well as individuals.
2. Pro-active in anticipating and responding to citizen needs.
3. Participative, by involvement of citizens.
4. Empowering women in all aspects.
5. Inclusion of all groups with special attention to the SCs, STs, OBCs and
minorities.
6. Equality of opportunity for the youth.
7. Transparency through the use of technology to make government visible and
responsive.
Initiatives like Atal Innovation Mission, Ayushmaan Bharat approach towards water
conservation measures and the draft bill to establish the National Medical Commission
to replace the Medical Council of India have all been conceptualized in NITI Aayog.
NITI Aayog is also bringing about a greater level of accountability. It has established a
development monitoring and evaluation office which collects data on the performance
of various ministries. Using such data, the Aayog makes performance-based ranking of
states to foster a spirit of competitive federalism. The success of NITI Aayog can be
evaluated after a substantial period of time.
NATIONAL DEVELOPMENT COUNCIL
The National Development Council (NDC) or Rashtriya Vikas Parishad is the apex body
for decision creating and deliberations on development matters in India, presided over
by the Prime Minister. It was set up on 6 August 1952.
Aim
1. To strengthen and mobilize the effort and resources of the nation in support of
the Five Year Plans made by Planning Commission, to promote common
economic policies in all vital spheres, and to ensure the balanced and rapid
development of all parts of the country.
2. The Council comprises the Prime Minister, the Union Cabinet Ministers, Chief
Ministers of all States or their substitutes, representatives of the Union
3. Territories and the members of the NITI Aayog (erstwhile Planning
Commission)

History
The first meeting chaired by Prime Minister, Jawaharlal Nehru on 8–9 November
1952.
Objectives:
It has been set up with four objectives
1. To secure cooperation of the states in the execution of the plan
2. To strengthen and mobilize the effort and resources of the nation in support of
the plan
3. To promote common economic policies in all vital spheres and
4. To ensure the balanced and rapid development of all parts of the country.
Functions:
The functions of the Council are
1. To prescribe guidelines for the formulation of the National Plan, including the
assessment of resources for the Plan.
2. To consider the National Plan as formulated by the NITI Aayog.
3. To make an assessment of the resources that are required for implementing the
Plan and to suggest measures for augmenting them.
4. To consider important questions of social and economic policy affecting national
development.
5. To review the working of the Plan from time to time and to recommend such
measures as are necessary for achieving the aims and targets set out in the
National Plan.
6. To recommend measures for achievement of the aims and targets set out in the
national Plan.
Questions:
1. Explain the strong and weak features of Indian Economy?
2. Give detail notes of demographic profile of India briefly?
3. What is national income? Discuss the various methods to estimating national
income of a country.
4. Explain the Functions of NITI Aayog and National Development Council?