Growth, development and the features of the Indian economy

1. Growth and development

Economic growth is a sustained rise in the real output of an economy, usually measured by the growth of real GDP or real per capita income. It is a quantitative idea. Economic development is wider: growth together with structural change and an improvement in the quality of life. Development means a falling share of agriculture in output and employment, a rising share of industry and services, lower poverty, better health and education, and more choices for people. Amartya Sen describes development as the expansion of the capabilities or freedoms people have; the UNDP’s Human Development Index (HDI, first published in 1990 with Mahbub ul Haq) measures it through life expectancy, education and per capita income.

2. Characteristics of a developed economy

• High per capita income and a high standard of living.
• Small share of agriculture in output and jobs; most people work in industry and services.
• High rate of capital formation, high saving and investment, and modern technology.
• Developed financial system: banks, insurance and capital markets reach most of the population.
• Low population growth, low birth and death rates, high life expectancy.
• High literacy and skills, and spending on research.
• Good infrastructure: power, transport, communication.
• Low poverty and unemployment, with social security for the old and the unemployed.
• Large share in world trade, mostly in manufactured goods and services.

The USA, the UK, Germany and Japan are the textbook examples. A developing economy such as India shows the opposite tendencies, but is moving towards them.

3. Features of the Indian economy

(1) A developing economy. India is among the largest economies in the world by total GDP, but its per capita income is low compared with developed countries, because the output is shared by a very large population. The World Bank classes India as a lower-middle-income country.

(2) Dependence on agriculture. Agriculture’s share in GDP has fallen steadily since 1951, but it still employs the largest single share of the workforce. Many people remain on the land because there are not enough jobs elsewhere, so output per worker in agriculture is low.

(3) Structural change led by services. In most countries labour moved from farms to factories and then to services. In India the services sector (trade, finance, IT, communications) became the largest part of GDP without manufacturing first becoming dominant. This is often described as “services-led growth”.

(4) Mixed economy. Since the Industrial Policy Resolution of 1956 the public and private sectors have worked side by side. After the reforms of 1991 the economy became more market-oriented: licensing was abolished for most industries and the role of the public sector narrowed.

(5) Large population and demographic dividend. India is the most populous country. A high proportion of people are of working age, which can raise growth if they are educated and employed; otherwise it adds to unemployment.

(6) Unemployment and underemployment. Indian unemployment is largely disguised (more people on a farm than are needed, so the marginal product of some is zero) and seasonal. Most workers are in the informal sector, without written contracts or social security.

(7) Poverty and inequality. Poverty has fallen substantially since the 1990s, but inequality of income and wealth, and between regions, remains wide.

(8) Capital deficiency and low productivity. Historically low saving and investment, poor technology and inadequate infrastructure kept productivity down. Saving and investment rates have risen since the 1990s but infrastructure gaps remain.

(9) Dualism. A modern sector (large industry, IT, organised finance) exists alongside a traditional one (small farms, household industry, moneylenders). Urban and rural India, and the organised and unorganised sectors, differ sharply.

(10) Planned development, now through NITI Aayog. India followed Five-Year Plans from 1951 to 2017. The Planning Commission was replaced by the NITI Aayog on 1 January 2015, which acts as a policy think-tank rather than allocating funds.

(11) Federal economy. Taxing and spending powers are divided between the Union and the States (Seventh Schedule). GST, introduced on 1 July 2017, is shared through the GST Council.

(12) Integration with the world economy. Since 1991, trade, foreign investment and remittances have become much larger relative to GDP.

4. India as a developing economy: the balance sheet

An essay can close by weighing the positives (high growth since the 1990s, a large domestic market, a young workforce, a strong IT and services base, rising foreign exchange reserves, digital payments infrastructure such as UPI) against the problems (low farm productivity, informal employment, regional imbalance, infrastructure gaps, inequality).

How this is examined

The June/July 2025 100-mark paper asked “What are the features of Indian economy? Explain” (16 marks); the January/February 2025 paper set the same as a 10-mark Unit I essay; the June/July 2025 80-mark paper asked instead for the “characteristics of developed economy”. Write a short definition, then numbered features with one explanatory paragraph each. For the developed-economy version, use section 2 and contrast each point with India.