India is an underdeveloped economy.  Its is a vast country having an area of 3.3 million sq. km. It has almost 5,76,000 villages. The population of India is widely scattered over villages and towns. Nearly 75% of the population lives in rural & semi urban areas, while the rest lives in towns.  There is doubt that the bulk of its population lives in conditions of misery.  Poverty is not only acute but is also a chronic malady in India.  At the same time, there exist unutilized natural resources.  It is, therefore, quite important to understand the basic characteristics of the Indian economy, treating it as one of the underdeveloped but developing economies of the world.

  1. Low per capita income:-  Underdeveloped economies are marked by the existence of low per capita income.  The per capita income of an India is lowest in the world.  The per capita income in Switzerland in 1989 was about 88 times, in West Germany about 60 times, in U.S.A. 61 times and in Japan 70 times of the per capita income in India. It is also important that developed economies are growing at a faster rate than the Indian economy and as a consequence, the disparity in the levels of income has become wider during period 1960-89.


  1. Occupational pattern:- Primary producing. One of the basic characteristics of an underdeveloped economy is that it is primary producing. A very high proportion of working population is engaged in agriculture, which contributes a very large share in the national income. In India, in 1981, about 71 per cent of the working population was engaged in agriculture and its contribution to national income was 36 per cent. In Asia, Africa and Middle East countries countries from two-thirds to more than four-fifths of the population earn their livelihood from agriculture, and in most Latin American countries from two-thirds to three-fourths of population engaged in agriculture in developed countries is much less than the proportion of population engaged in agriculture in underdeveloped countries.


  1. Heavy Population pressure:– The main problem in India is the high level of birth rates coupled with a falling level of death rates. The rate of growth of population which was about 1.31 per cent per annum during 1941-50 has risen to 2.11 per cent during 1981-91.  The chief cause of this rapid spurt to population growth is the steep fall in death rate from 49 per thousand during 1911-20 to 9.6 per thousand in 1990; as compared to this, the birth rate has declined from about 49 per thousand during 1911-20 to 29.9 per thousand in 1990.  The fast rate of growth of population necessitates a higher rate of economic growth in order to maintain the same standard of living of the population. To maintain a rapidly growing population, the requirements of food, clothing, shelter, medicine, schooling, etc. all rise. Thus, a rising population imposes greater economic burdens and, consequently, society has to make a much greater effort to initiate the process of growth.



  1. Prevalence of chronic unemployment and underemployment: In India labour is an abundant factor and, consequently, it is very difficult to provide gainful employment to the entire working population.  In developed countries, unemployment is of a cyclical nature and occurs due to lack of effective demand.  In India unemployment is structural and is the result of a deficiency of capital.  The Indian economy does not find sufficient capital to expand its industries to such an capacity that the entire labour force is absorbed.


  1. Low rate of capital formation: Another basic characteristic of the Indian economy is the existence of capital deficiency which is reflected in two ways— first, the amount of capital per head available is low; and secondly, the current rate of capital formation is also low.  Following table reveals that gross capital formation in India is less than that of developed countries.
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