Basic nature of Indian economy System
India is regarded as one of the fastest growing major economy in the world. Since 2010, while most emerging economies witnessed a declining trend in growth rate, India’s growth rate showed improvement. This led to global policy-makers trying to understand the Indian economy better.
Basic Characteristics of the Indian Economy
The key macro-indicators or the basic characteristics of the Indian Economy are as follows:
Usually, income level is used in the determination of the overall well-being and happiness of a country and its citizens.
Therefore, it is one of the important basic characteristics of the Indian Economy. Income of an economy is generally measured through the Gross Domestic Product or GDP.
Capital formation plays a crucial role in the economic development of a country. Usually, insufficient capital is the primary culprit in underdeveloped or developing economies.
Therefore, both production and consumption are dependent on the amount of capital available in the country.
Capital Formation includes physical resources like tools, machines, etc. as well as human resources like the knowledge, skill, health, etc. of the workforce.
The most important process of accumulating physical capital is increasing the volume of real domestic savings. According to the World Bank, in 2015, the household sector was the biggest contributor to Gross Domestic Savings in India.
Managing inflation is the toughest tasks of an economic policy-maker. Inflation is the sustained rise in the general level of prices. There are many factors which influence the rate of inflation in an economy.
In India, fluctuations in prices are a common occurrence due to several natural and economic factors. These fluctuations create an atmosphere of uncertainty which goes against the spirit of the economic development of the country.
Two price indices help in the measurement of Inflation – the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).
In countries like India, the domestic capital is not sufficient for economic growth. Therefore, foreign capital is a way of filling the gap between domestic savings, foreign exchange, government revenue and the investment necessary to achieve the developmental targets.
Apart from being capital-poor, India is also backward in technology required for rapid economic development for many reasons. Foreign capital can provide the required resources to solve the technological backwardness of the country.
In 1991, the Government announced a New Industrial Policy to increase the flow of foreign capital in India.
Traditionally, India was famous for textile and handicrafts exports. During the British era, India became an exporter of raw materials and the British machine-made goods.
However, in the post-independence period, India went through a huge change in its foreign trade policy. Since the introduction of the five-year plans, India started depending heavily on imported machinery and equipment to develop different types of industries.
That was a time when India needed to import capital goods to set up industries. These were developmental imports. Subsequently, India needed to import huge quantities of intermediate goods and raw material to utilize the productive capacity created in the earlier stage. These were maintenance imports.
Therefore, foreign trade has helped India in different stages of its economic development.
The top 10 destinations for Indian exports are UAE, USA, Singapore, China, Hong Kong, Netherlands, Saudi Arabia, UK, Germany, and Japan.
These countries accounted for around 50% of India’s exports. Further, India primarily exports petroleum products, engineering goods, gems, and jewelry.
The top 5 countries from whom we import goods are China, UAE, Saudi Arabia, Switzerland, and the USA. On the product front, we mainly import petroleum and crude oil products and pharmaceutical products from these countries.