Indian Economic aspects Bhavesh Jha

The Economy of India
Bhavesh Jha
Bhaveshjha08@gmail.com
C o p y r i g h t r e s e r v e d 2 0 1 2 ®

The Indian Economy: An overview
The Indian economy having a GDP of around $752 billion is the world’s 10
th
largest economy in Gross
Domestic Products terms. The economy of India is slowly integrating with the global economies and
making a presence in the global market. The economic liberalisation started in 1991 proved to be a
success in order to maintain the diversity of economic investments in different sectors. The stagnant
economic growth and international market repute has boosted the economy in al fronts. With the
population of around 1.25 bn India is the second largest economy in the world after China in terms of
population. The income diversity, poverty, illiteracy and unemployment have been some of the main
causes behind its slow pace of growth. Government of India will have to work hard on different fronts for
an efficient and powerful economic infrastructure to reduce poverty, accelerate the fiscal deficit and
upgrade the physical infrastructure in the economy. The GDP growth has been around 6.5% in 2011-
2012, which shows a slight downfall as per the GDP growth rate of 7.5% in 2006-2007.
There are mainly three sectors in India namely primary, secondary and tertiary sectors which can also be
elaborated as agriculture sector, manufacturing sector and services sector respectively. Most of the
population is dependent upon the agricultural sector and the economic contribution which is around 19%
from this sector has been dismal. Due to the lack of political goodwill, lack of awareness, information
scarcity, inefficient technology, lack of infrastructure etc. this sector is not producing at par although it has
around 60% of Indian population totally depend on it. Most of our rural population is still dependent on
agriculture or related activities. As far as secondary or manufacturing sector is concerned which is the
most important sector and said to be the backbone of Indian economy, accounts for 24% contribution to
Indian GDP. Around 22% of Indian population is involved in the manufacturing industry. According to a
study by Crisil,” India’s National Manufacturing Policy: Achievable Goals?”, employment generation in
India has become a prominent issue and if manufacturing growth is raised from 8% p.a. last decade to
11% p.a. this decade (2012-13 to 2021-22) that would create a huge employment opportunities of around
19 million jobs. There is a need of additional infrastructure and skill development in the masses on a very
large scale. Also Government should focus on enhancing the awareness about different skill and
The information,images, and/or data contained in the study are copyrighted by the owner and may not be distributed,modified,reproduced in whole or in
part without prior permission.

employment programmes at a local level. Although India has made a progress in various science and
technology spheres over the last few decades, an innovative knowledge base, efficient and productive
manpower and awareness about the different government programmes on manufacturing sectors are to
be taken care of. Services sector has become a very significant contributor of Indian economy in the last
years. It is the most efficient sector as far as its contribution in the economy is concerned. Services sector
accounts for around 57% contribution in the economy and it employs minimum population. Around 18%
of Indian population is dependent on the services related activities. Services sector has become the fasted
growing sectors in the world economy in the last decades and hence Indian services sector has also grown
at a very rapid rate and makes an important presence in the global market. The crucial sectors under
services are education and health sector which has been the challenging as well as the largest sub-sectors
in the economy. Government is also looking at public health facilities especially in rural India and planning
to build an efficient infrastructure for public health. Foreign Direct Investment FDI in education sector is
also under consideration. The government is planning to facilitate the foreign investors to invest in the
huge education market.
There is a huge mismatch of population/ efficient workforce/ natural resources etc. and these are making
the economy more diversified in terms of income generation, efficient labour force or employment
generation facilities. Different states have been doing really well as far as GDP contribution, Business
Competitiveness Index, Education facility, physical infrastructure, Administration etc. are concerned. But
there are many states that will have to work on the different aspects of development activities.
States’GDP contribution in Indian Economy
The contributions in the national GDP, some of the states have played a very significant role and have
supported the national GDP to boost. The chart describes the contribution of State Gross Domestic
Products (SGDP) at factor cost in Indian Gross Domestic Product GDP basically shows the performance in
2010. Clearly, Maharashtra, Uttar Pradesh, Andhra Pradesh, West Bengal, Tamilnadu and Gujarat are top
6 contributors accounting for more than 50% of country's GDP with contributions of 14.95 %, 9.18%,

8.25%, 7.47%, 7.32% and 7.28% respectively of total GDP of India.
1.1. Rank wise contribution of different states in Indian Economy

It can be observed that the majorly north-eastern states have a very less contribution in the economy and
there are about 16 states out of total states which contribute less then 10% of country's GDP.
Almost all the leading states, economies are dependent upon the service sector and manufacturing sectors
which provides a backbone for states to sustain for a longer period of time.
Maharashtra accounts for a SGDP of Rs/- 480334.74 Cr.The shift from primary to secondary to tertiary
has been taken place at a faster rate in Maharashtra when compared with the national level. Comparing
with UP the second leading contributor which accounts for Rs/- 294836.02 Cr. only is about half of the
Maharashtra’s Contribution. Communication, transport and public administration have accounted for large
part of service growth in Maharashtra. Large international banks, leading financial services companies and
international courier companies, car hire companies, advertising agencies and engineering companies
have all established themselves in Mumbai. Several law firms, consultancy firms, clearing and forwarding
agents, broking firms, merchant bankers, commercial banks and hotels provide the essential support
services. Maharashtra has the largest share of the total foreign direct investment and foreign
collaborations approved by the Government of India so far. These include Coca Cola, Enron, Mercedes
Benz, Siemens, Procter & Gamble and Unilever, to name a few.
Educated yet unemployed!
There is a huge disorder if we consider the unemployment and the education scenario in India. Indian
education sector can be classified as primary, secondary and tertiary education on the basis of the
qualifications (degree obtained). The unemployment condition in the economy is becoming a huge
challenge for the economy. An economy which would like to be a superpower till 2020, should not neglect
this prominent issue of educated unemployment.
According it International Labour Organisation, unemployment occurs when people are without jobs and
are actively searching for jobs for the last 4 weeks. A developing country like India where around 10% is
the unemployment rate, more then half of its population is below poverty line (BPL) as per ADB BPL of 2$
a day; employability has been a cause of concern for government. Proper and efficient technical education

and the opportunities thereafter are lacking. Except IITs, IIMs and some top technology and management
institutions; the quality of education has been not very satisfactory. Despite producing quality
professionals, Institutions put their focus on pomp and show. Industry- academia linkages is lacking and
due to what the graduates are not able to find a satisfactory job after the completion of such professional
courses like B. Tech, B.E, MBA etc. There is a huge mismatch with the industrial standards of hiring a
professional and the raw graduates prepared by these institutions. The practical knowhow and attitude of
today’s graduates are a cause of concern for the industry as well as the economy. According to a study,
Engineers in India does not match with the international standards and their productivity is only one third
of an engineer from USA or UK.
The unemployment scenario after getting the higher education can be discussed as under. The chart looks
upon the Indian unemployment and education (primary, secondary and tertiary) scenario till 2005. As per
the chart, % unemployment with primary education in the total unemployed people has dropped over the
period i.e. 44.7% in 1987 to 29% in 2005. Unemployment with secondary education out of the total
unemployed people has been 32.22% and 37.7% for 1987 and 2005, which shows an increase in
unemployment over the period. Unemployment with tertiary education out of the unemployed people has
also increased i.e. from 23.1% in 1987 to 33.3%.
1.2.Unemployment Vs. Types of Eduction

Thus it can be clearly observed that higher the degree higher has become the unemployment rate. This is
an alarming fact for the government to focus upon the productivity of our education system. This also
leads towards employability of the educated people in the country specifically the tertiary education
holders which has been around 1/3rd
the total unemployed population and is increasing.
Unemployment and thus poverty is pushing our highly qualified graduates’ steps back and they feel very
frustrated and unable to perform and sometimes they are involved in different bad and criminal activities.
He is begging here and there to get some jobs. He queues in long line where for one post, there are more
than hundred people. The tremendous pressure from family and society makes them to earn at any cost.
Sometimes, some of these strugglers defeat with the situation and the surroundings and he/she takes the
extreme step i.e. suicide. If he is able to find a job still he is not paid as per his qualification. He is
exploited maximum and the job pressure takes away all his happiness, personal and social space. As per
the international labour law; around 35 hours a week on an average is the criteria of working hours; but in
India people work 50 hours a week usually. This is the height of the unethical and unsustainable practices
in the Indian job market. Those money could have been spent in some other ventures like in setting up
own ventures, enterprises etc.
The societal environment needs to be more practical and entrepreneurial. Instead of finding a job an
Engineer or an MBA can use his/her expertise to open up his venture, which not only provides him/her

mental satisfaction but also the reward in terms of better economic gains. They would be able to generate
more economic contribution to the society and also the jobs, which will enhance the inclusive growth and
development of society at large. We are not able to make a bankable and feasible business plans after
getting these higher studies. Then what is the utilization of the studies they have done. Instead of
producing job seekers, governments, institutions should take up a stand towards making graduates job
makers. Through the use of business incubators at institutions, they can also enhance their saleability in
the market.
Instead one should think and find one’s real instinct, strengths and interests which can be nurtured into an
idea. This idea can be transformed into an enterprise. The enterprise can provide not only self economic
sustainability for an individual who starts it but also it generates employment for others as well.
Academic institutions should pay more attention towards the industry demands. Through proper
communication and interactions with the industry they should not only design the course but also they
should increase more practical on job trainings in curriculum in terms of internships. Generally for an MBA
internship is of 4 months on an average. This should be increased to 10-12 months so that a graduate
learn the different dimensions and complexities of businesses and be more capable of handling the
situations in the management process. Time has gone when only the lectures, attending classes and
attaining qualifications were more than enough for a graduate to satisfy the role profile of any company.
Graduates need to be more practical, efficient and productive in the complex business environment these
days.
Literacy Rate vs. Per Capita Income
A literate and qualified person is supposed to be more effective and efficient worker. Literate population
can enhance the prosperity in the society and find better jobs and hence help in raising the income level in
the country. Usually an educated, qualified labour force is more productive than an illiterate and unskilled
labour force. According to Census 2011, a person aged seven years and above who can both read and
write in any language, is treated as ‘literate’.
The graph exhibits literacy rates and per capita income generation of Indian states. The graph shows that
literacy does not always matter for a high income generating individual. There are various internal and

external factors which affect this correlation of a literate and a more income generating individual. Income
inequality with respect to the literacy rate shows the dynamics of Indian regional income biasness. Kerala,
Mizoram, Tripura, Goa and Delhi are the top 5 literate states while Delhi, Haryana, Goa, Maharashtra and
Gujarat are top 5 states as far as income generation per capita is concerned.
Note: Short forms are as: AN- Andhra Pradesh, AP- Arunachal Pradesh, AS- Assam, BR- Bihar, CH- Chhattisgarh, DL- Delhi, GO- Goa, GJ- Gujarat, HR-
Hariana, HP- Himachal Pradesh,JK- Jammu & Kashmir, JH-Jharkhand, KR-Karnataka, KL- Kerala, MP- Madhya Pradesh, MH- Maharashtra, MN-Manipur,
MG-Meghalaya, MZ- Mizoram, NG- Nagaland, OR- Orissa, PN- Punjab, RJ- Rajasthan, SKM- Sikkim, TMN- Tamilnadu, TPR- Tripura, UP- Uttar Pradesh,
UTK-Uttarakhand, WB- West Bengal.
1.3. Literacy Rate vs. Per Capita Income

North India shows a diverse profile of states in income per capita and literacy rate. Delhi being the first in
per capita income generation and Bihar in the other hand has lowest per capita income. Also Delhi is fifth
in literacy rate and Bihar has least literacy rate. North eastern states (like Mizoram, Tripura, Sikkim
Nagaland, Manipur, Meghalaya, Assam) with Orissa despite having a very good literacy rate and it is 80%
on an average still not able to increase their per capita income which is on average 35000 Rs/- in
comparison to other relative states. West Bengal also has a literacy rate of around 77% is not able to
generate per capita income in comparison to the leading states like it. Bihar is having the least per capita
income and literacy rate as well.
Haryana is far behind as per the graph in literacy rate ranking which shows that literacy doesn’t totally
dependent upon the income per capita.
Southern Indian states are performing moderately which shows that their literacy rate on an average is
81% and they are able to generate 71000 Rs/- per capita income on an average. Despite of being top
rankers in literacy rate Kerala and Mizoram are not able to make it in top 5 as far as per capita income is
concerned.
West India’s performance is also very good with its literacy rate and per capita income.
However as per the trend line it can be emphasised that the increase in per capita income has a positive
correlation with literacy rate. Taking the literacy scenario all over India it is evident that some of the
states justifies the hypothesis of literate and with a income generating capability but in some of the states
shows a very negligence impact of literacy on the income generation.
Micro, Small and Medium Enterprises MSMEs and Employment Generation
MSMEs sector is known to be the backbone of any economy and especially in the case of a developing
economy it is of immense importance. According to the Ministry of Micro and Small Industry,
Government of India, MSMEs have been classified in two classes i.e. Manufacturing Enterprise and
Services Enterprise. viz. Manufacturing sector and Services Sector. The Manufacturing Enterprise

is defined in terms of investment in Plant & Machinery. The enterprises engaged in providing or rendering
of services and are defined in terms of investment in equipment are called Service Enterprises.
The definition of Micro, Small and Medium Enterprises can be looked as under
Manufacturing Sector
Description INR USD($)
Micro Enterprises Up to Rs. 25Lakhs Up to $ 62,500
Small Enterprises Above Rs. 25 Lakhs & up to Rs. 5 Above $ 62,500 & up to $ 1.25
Crores million
Medium Enterprises Above Rs. 5 Crores & up to Rs. Above $ 1.25 million & up to $
10 Crores 2.5 million
Services Sector
Description INR USD ($)
Micro Enterprises Up to Rs. 10Lakhs Up to $ 25,000
Small Enterprises Above Rs. 10 Lakhs & up to Rs. 2 Above $ 25,000 & up to $ 0.5
Crores million
Medium Enterprises Above Rs. 2 Crores & up to Rs. 5 Above $ 0.5 million & up to $ 1.5
Crores million
1.4. Definition of MSME (Ministry of Small and Medium Enterprises, Government of India)

In India, MSMEs account for a 45% contribution in industrial output, 40% of exports. This sector creates
around 1.3 million jobs every year and produce more than 8000 quality products for the Indian and
international markets. Micro and small enterprises play a very significant role in ensuring the economic
growth and activities at very local level, which makes the economy employment-friendly and also
contributing to greater regional balance in levels of inclusive development.
The chart below shows no. for MSMEs and employment generation in India for the last 10 years. According
to the chart, it is illustrated that over the period of time the increase in no. of MSMEs and employment
have grown at the rate of 29% and 31% respectively. However the growth in the employment has not
been feasible enough. The average increase (%) for the period has been more or less same around 4% for
both i.e. employment increase and MSMEs increase. The employment increase from the previous year has
been maximum in 2005-06 and is around 6%.
1.5. MSMEs and Employment Generation

The government’s initiatives, simpler legal procedures, promotion of public private partnerships and
stakeholders’ co-operations will certainly bring productivity and generate jobs. A number of problems
must be addressed like absence of adequate and timely finance, knowledge and information about the
different government policies, lack of technology, low production capacity, ineffective marketing strategy,
constraints on modernisation & expansions, non availability of highly skilled labour at affordable cost etc.
Government should take different initiatives to promote small and medium enterprises. Different policy
measures and awareness programmes with financing opportunities governments can elevate the financial
and physical health of MSMEs sector. Since MSMEs have the power to consume all the labour force
provided their capacities are maintained and they are able to expand. Government must promote the
MSMEs sectors and enhance the economic prosperity of the huge human resources in the economy. There
is an inter-linkage among them which can be shown as: promotion of MSMEs-employment
generation-economic freedom-poverty eradication-literacy-standard of living improved.
Labour Participation in India
According to World Bank, “Labour force participation rate is the proportion of the population ages 15 and
older, which is economically active and all the people who supply labour for the production of goods and
services during a specified period”. Labour force participation in India has also been a cause behind a low
per capita income generation. The labour participation rate has a direct and positive consequence in the
development of the economy. Labour force consists of Men and Women labour force. Traditionally, it has
been observed that women should not work and thus gradually women are considered to be inferior to
their men counterparts when it comes to work.
The Indian workforce participation rate has decreased tremendously especially after the industrial reform
and post 1995 when it was around 60%. As India with the economic dynamics, geography, culture and
workforce is very similar to China, it would be interesting to see the human workforce participation in
these two Asian giants. Both India and China have emerged as two largest markets in the world with a
view to improving efficiency and enhancing stability of their different sectors. The chart presents different
facts about labour participations in both the economies. Interestingly, Indian labour participation rate has
been healthier in comparison to Chinese till 1995 which was approximately similar at 60% at that time.
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Further, the trend line shows a budding wide gap of Chinese and Indian labour participation specifically
after 1993-1994.
1.6. Indian and Chinese Workforce participation
The labour force participation for 1980 show 61% and 56% for India and China respectively which has
been 57% and 70 % for Indian and China in 2010. China has grown on an average of 0.46% on an
average over the period while India shows a negative average growth of around 0.06% over the taken
period, an alarming bell for the Government.
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China has increased its labour participation in the economy. Specifically the female work force
participation has increased tremendously in China. The women workforce participation in India has been a
meagre 33% whereas same for China is 69% almost double, which certainly gives an increasing edge to
the total participation rate. This also shows better productivity of the Chinese workforce and contribution
to the GDP of China.
The government of India should take measures and start encouraging women work force to participate
more since figures show a decreasing trend in the labour participation. Facilitation of technical education
for girls and support will certainly enhance their economic position. The participation would help in
growing inclusively and will lead India to be in the league of super economies.
As the expansion of services sectors in Indian and Chinese economy, the manual (physical) labour
demand has been decreased over the years as the expansion in services sector jobs; both the sexes have
an equal footing in the contribution to the economies these days.
Studies shows that educated women bring better educated and healthier children and thus carry social
and economic productiveness in the economy. Women economic empowerment not only increases the per
capita economic contribution in the society but their saving attitude and best of the utilisation techniques
make them a better investor. Economically empowered women are more likely to spend money on
improving health, education, infrastructure and poverty. A relative higher rank in Human Development
Index factors like health, education, per capita income etc can also be shown as a proof of a better and
economically empowered women status in Chinese economy.
The chart shows Indian and Chinese women participation rates over the period which exhibits few points
like; The participation of women has been more than double in China (around 70%) comparing to India
(around 33%) over the period. It shows the rapid growth and boost in economic activities.
The chart shows an increase trend in women participation in both the countries. In India, it increased till
1996 and the highest participation has been 34% whereas In China, it improved till 1992 and the highest
was around 73 %. According to the figures and trend line, it is clear that Indian women workforce has
consistently participated despite a dip in2001-2002, whereas Chinese women participation in labour has
started decreasing specifically in the period 1995-2009 for China.

1.7. Women workforce participation in India and China
There can be mainly two reasons for a lower participation rate of women workforce in India and a lower
wage rate in comparison to their men counterparts. They are first the discrimination and second by choice
of lower paying jobs like clerical. The gender discrimination occurs even before women become a labour
force. It happens at birth when sex-selection technology is employed to ensure fewer female births. The
gender in equality, safety, lack of family support, infrastructure etc. is still creating a problem in this
modern era of 21st
century. The successful and optimum utilization of the economy’s workforce is very
significant and the workforce includes both males and females. Gender balance in the workplace has
become a necessity for a better growth and economic equality and workplace diversity. Different initiatives
need to be taken at a personnel and organisational front.

Indian Economic growth
India has had rapid economic growth after opening up its economy in 1991. According to United Nations UN
report, India with a higher savings and investment rates in the economy is projected to get a better
economic growth in coming years, even as most of the Asia-Pacific economies are likely to expand at a
slower pace.
The chart exhibits the economic growth rates for different economies in the last five year period. Here
Euro zone (17 of the European Union member states together have formed Euro zone and accepted
currency as “euro” only), U.S.A. U.K and BRICs (Brazil, Russia, India and China) have been taken to show
the status of growths for leading developed and developing economic
1.8. Economic growth comparisons

The growth rates show that developing nations are growing at a faster rate in comparison of the
developed nations. E.g. China, India Brazil and Russia have maintained a steady but constant growth
(AVG.) of 10%, 8%, 6% and 6% respectively. Specifically the major developing economies like China and
India have performed well and have been representing the huge Asian market. In the period 2008-2009,
the recession affected very badly to about all the economies. Still the stability and strong market in India
and China have shown a comeback beyond expectation. As per the chart also, it is clear that all the
economies had a negative growth rate except these two; like -0.2%, -6.6%, -2.4%, -4.9%, -4.1% for
Brazil, Russia, U.S.A., U.K. and Eurozone respectively.
An estimate of World Bank says that an additional 64 million people are living in extreme poverty on less
than US$1.25 a day by the end of 2010 as a result of the global recession. Low export dependency, a
large consumption base and the high share of employment and income come from rural areas.
Government’s focus and initiatives at local level will help in sustaining the economic growth at large. India
is among the most attractive destinations globally, for investments and business and FDI had increased
over the last few years. With the inclusive work force participation, development of infrastructural
facilities, encouraging small and medium enterprise MSMEs sector, government can fill the gap of income
disparity in different regions. Better policy measures and awareness programmes regarding many of the
government initiatives for the betterment of society can do wonders for an inclusive society and nation.
Better employment prospects, better technical education and programmes on poverty eradication and
public health must be priory concerned. An action oriented approach in a very aggressive manner would
be needed to facilitate a better livelihood and better market conditions for the society.

Indian Economic aspects Bhavesh Jha

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