UNIT 13 STRUCTURE OF INDIAN ECONOMY

Structure

13.0 Objectives
13.1 Introduction
13.2 India- An Underdeveloped Economy
13.3 The lndian Economic System
13.4 Economic Growth and Economic Development
13.5 Trends in National Income Growth and its Structure
1 3.5.1 Trends in Distribution of National Income by Industrial Origin
13.5.2 Urban-Rural Income Break-up
13.5.3 Share of Organised and Unorganised Sectors in NDP
13.6 Trends in Savings and Investment
13.6.1 Trends in Gross Domestic Savings
13.6.2 Trends in Gross Domestic Capital Formation
13.6.3 Share of Public and Private Sectors
13.6.4 Gross Capital Formation by Industry of Use
13.7 Role of the Public Sector
13.8 Joint Sector
1 3.9 Let Us Sum Up
13.10 Key Words
13.1 1 Answers to Check Your Progress
13.12 Terminal Questions

13.0 OBJECTIVES
After studying this unit you should be able to :
describe the basic characteristics of lndian economy;
explain the concepts of capitalistic, socialistic and mixed economy;
outline the principal features of the mixed economy framework adopted by India;
explain the concepts of economic growth and economic development;
describe the trends of national income in India;
outline the trends of savings and capital formation in the lndian economy;
discuss the role of public sector in the lndian economy; and
explain the concept of joint sector and it's share in productive capital, value added
and corporate employment in India. \

13.1 INTRODUCTION
You know that most underdeveloped countries are poor and their rate of capital
information is hardly adequate for sustained development, and India is no exception.
Almost all important characteristic features of an undeveloped economy were present
in lndian economy on the eve of Independence. With the beginning of economic
planning, an era of development ushered in. For acquainting oneself with the current
 state of Indian economy, one has to assess the development achieved during the five
decades of economic planning and take note of the structural changes that have taken
place during this period. In this unit you will learn about the nature of Indian
economy, the economic system adopted, the trends in national income and its
structure, and the trends in national savings and investment. [n addition, you will learn
about the role of public sector in building up a strong industrial base and the
contribution of private sector and joint sector in development of the economy.

13.2 INDIA-AN UNDERDEVELOPED ECONOMY

The Indian economy is characterised as an underdeveloped economy. Though it no
longer suffers from stagnation as it did under the British, the development since
independence has not been spectacular. One fourth of the population still lives in
conditions of misery, and poverty remains a chronic malady. A good amount of
national resources still remain unutilized. In fact, almost all characteristic features of
an underdeveloped economy are still present in the Indian economy. Let us analyse its
basic characteristics.

Low per capita income : The per capita income in India in 2003 was $530. Barring
a few countries, it is lowest in the world. The per capita income in 2003 in
Switzerland, Germany and USA respectively was 75,48 and 71 times the per capita
income in India. During 1990-2003, Indian economy has grown at a faster rate than the
developed economies but the difference in per capita income still remains very large

Occupational pattern-predominance of agriculture : A very large proportion of

working population in India is engaged in agriculture. In 1999, about 61 per cent of
the working population was engaged in agriculture and its contribution to national
income was 28 per cent. The proportion of population engaged in agriculture in
developed countries like UK, USA and Japan is much less. The same is true of their
contribution toLGDP. The reliance on agriculture in India is far greater than even in
'
some third world countries like Indonesia, China, Brazil, etc.

Rapid population growth : The population of India has been growing at a fast rate.
According to 2001 census, the total population is 102.5 crore as against 43.9 crore in
1961. The main cause of this rapid spurt of population growth is the steep fall in death
rate without a corresponding decline in birth rate. The population explosion has offset
the small gains of development that had been made during this period. It has resulted
in high dependency ratio and increased labour force in the country.. [n 1999, the
percentage of population in working age group (1 5-64 years) was 61.1.

Chronic unemployment : On account of increasing population of working age group,

it has been difficult to provide gainful employment to the entire working population.
According to Planning Commission, the current daily unemployment at the end of a

200 1-02 was 3.49 crore. It is observed that while in developed countries, I
unemployment is of a cyclical nature and occurs due to lack of effective demand, it is 1

chronic in India and results from the structural defects in the economy. It is also
noticed that unemployment exists in a greater degree in urban areas. According to 55"'
round of NSS estimates, while the current daily status of unemployment rate for rural
workers was 7.20 per cent in 1999-2000, it was 7.70 for urban workers. The main
problem in rural areas is that a large number of workers do not have adequate work 1
throughout the year and many of them suffer from open unemployment, and 3
underemployment for long periods. Not only that, in agriculture much larger number
r
r

i!
of labourers are engaged than required and, tfius, there exists 'disguised' or 'concealed' Structure of I d i o n Economy

I
I
unemployment.
I
Deficiency of capital :Another basic characteristics of the Indian economy is the
I existence of capital deficiency which is reflected in two ways : (i) the amount available
II capital per head is low, and (ii) the rate of capital formation is low. The rates of gross
domestic saving and gross domestic capital formation in 2001-02 was 23.7 and 23.1
per cent of GDP respectively. Though it is quite encouraging, it is much less than
that of some of the East Asian Countries and, in the context of the rising population, is
still not considered to be adequate for achieving the required rate of economic growth.

I Maldistribution of wealth / assets : The Reserve Bank of India survey of assets of

rural and urban households in India for the period July 1991 to June 1992 brings out
the existence of sharp inequalities in asset distribution. In rural areas, 27 per cent of
the households owning less than Rs. 20,000 worth of assets accounted for 2.4 per cent
of the total assets, and about 24 per cent of households owning Rs. 20,000 to Rs.
50,000 accounted for merely 7.5 per cent of the total assets. As against this, 9.6 per
cent of rich households (owning assets worth Rs. 2.5 lakh and above) accounted for
nearly 49 per cent of the total assets. The situation in urban areas is much worse
where 50.7 per cent of the urban households owning less than Rs. 50,000 worth of
assets accounted for merely 5.3 per cent of the total assets, and 14.2 per cent of the rich
household (owning assets worth Rs. 2.5 lakh and above) held merely 66 per cent of the
total assets. This inequality of wealth distribution is the principal cause of inequitable
distribution of income. It also signifies that resource base of 50 per cent of the
household is so weak that it can hardly provide them anything above the subsistence
level of income.

Poor quality of human capital : A glaring feature of an underdeveloped economy is

the poor quality of human resource. Most of the underdeveloped countries suffer from
mass illiteracy and India is no exception.. It goes without saying that a minimum level
of education is necessary to acquire skills and also to comprehend social issues.
Indian public expenditure on education and research and development in 1999-2001
was just 4.1 per cent of GDP. The corresponding figures in USA is 6 per cent of GDP.
Human development is usually measured in terms of Human Development Index (HDI)
constructed by UNDP which is based on the life expectancy, adult education and
combined enrolment ratio, and real per capita GDP in US dollars. It is distressing to
note that India has been ranked 127 in terms of HDI in 2002 while China ranked 94.
Obviously, India has a longway to go before it reaches the level of developed countries.

Low level of technology : In an underdeveloped country like India majority of the

manufacturing units use outdaed and inferior techniques of production. Agriculture
which provides subsistence to about two-thirds of the population, has low productivity
mainly on account of technological backwardness. The vast majority of farmers are
too poor to buy even the essential inputs, not to speak of affording the expensive
equipment like sowing machines, harvesters and tractors. However, with liberalisation
of economy and building up of substantial capabilities in science and technology, a
large number of enterprises have started adopting modern technology for survival and
growth.
Economic Environment
13.3 THE INDIAN ECONOMIC SYSTEM
Soon after independence, the Indian leaders had to take a decision on the model of
development to be followed. The choice was between socialism with complete
ownership and control of the means of production by the state or capitalism with
ownership of the means of production totally in the hands of the private sector with
highly limited role of the stite. The world had experience of these two models of
development. The capitalistic model had been adopted by UK, USA and a large
number of countries of Western Europe which emphasized the role of private free
enterprise in economic development. It was widely held that what was most profitable
for the individual was also good for the society and its economic welfare. Perfect
harmony could be achieved through the acceptance of the invisible hand of self-interest
and the use of the market forces of demand and supply. The socialistic model of
development, on the other hand, was adopted in USSR in 1917 after the Russian
Revolution and had been accepted in Eastern Europe and China. The model was
inspired by the teachings of Karl Marx who believed that the capitalistic system
allowed a few powerful capitalists (industrialists, landlords and big businessmen) to
exploit the vast majority of workers. To rid the system from the exploitation of the
capitalist class, all means of production should be brought under state ownership and
control, and the economy would have no private enterprise based on self interest. It
was described as the totalitarian model of development.

Keynes, however, thought that if some of the defects of the capitalist system were
removed, it would become an advisable system as it helps to promote competition and *.
efficiency in production. It was much better than the socialism of the authoritarian
type which killed all individual initiative and deprived the individual of freedom, both
economic and political. A compromise was, therefore, suggested between the high
degree of state intervention promoted in socialist economy on the one hand and free
enterprise capitalist economy on the other based on market forces. The Indian polity
also rejected the command model of Soviet variety and favoured democrative socialism
which envisaged mixed economy tiamework and was basically a compromise of the
two diametrically opposite schools of thought.

Mixtd Economy Framework for Indian Economy

i ,
-I

The concept of mixed economy in India accepts the co-existence of public and private
sectors. It also provides for a greater role of the state to direct economic activity as per
the Directive Principles of the Indian Constitution which laid down that the state should
strive "to promote the welfare of the people by securing and protecting as effectively as
it may a social order in which justice-social, economic and political, shall form part of
all institutions of national life". The concept, therefore, entailed the following :

Positive economic role o f the state : The state, in order'to implement the directions
given in the Directive Principles, should ensure that the ownership and control of the
material resources of the community is managed in such a manner that it leads to
prevention of (a) concentration of wealth in the hands of a few, and (b) exploitation of
labour. In areas which are crucial for the economy and in which private sector
investment was not forthcoming, the state should enter the field of production. To
protect the weaker sections against the exploitation by traders, the state is also expected
'
to control the distribution of essential commodities. Thus, consideration of
development, industrialisation and self-reliance impelled the state to undertake
investment in the public sector and the consideration of social justice impelled it to
control distribution in the larger interests of the society. The state also stepped in to
 control banking and insurance by promulgating nationalisation of insurance companies Structure of tndlrn Economy

and also of banks. This helped the state to direct investment in socially desirable lines
of production.

It was observed that since the development of infrastructural facilities like

- hydroelectric projects, irrigation and flood control, rail and road transport,
communication, etc. required heavy capital investment with a long gestation period and
low rate of return, the ~rivatesector was unwilling to make the necessary investments.
The pubic sector was, therefore, assigned the role of developing the necessary
infrastructural facilities. Besides, the state is also expected to take care of the social
infrastructure in the form of education and health as it is equally important for
promoting economic development and ensuring social justice.

Co-existence of public and private sectors : In India, the state demarcated the areas
specified for the public and the private sector in Industrial Policy (1956). In the first
- '
category were included such industries whose development would be the exclusive
I responsibility of the state. In the second category were included industries which
would be progressively state-owned, but the private sector may be permitted to
supplement the effort of the state. In both of these categories, the state was expected to
promote the rapid expansion of the public sector with a view to establish and develop
industries of strategic and basic importance to the economy, and promote self-reliance.
The state also undertook investment in transport, energy, water supply and electric
energy - the areas of infrastructure, the nationalisation of 20 major commercial banks
was another big effort to channelise investment in socially desirable lines of
production. All other areas were left open for the private sector. Even in areas
democrated for the public sector, the private sector could be permitted to supplement
the efforts of the state. The Planning Comniission rightly observed that, "In a planned
economy, the distinction between the public and the private sector is one of emphasis.
The two sectors are and must function as parts of a single organism". However, the
public sector during the first four decades of development played the role of the senior
partner.

In agriculture, the state, by and large, permitted ownership in the hands of individuals,
but in order to limit the activities of big Landlords imposed ceiling land holdings. The
whole idea was to promote small peasant ownership so that exploitation by landlord
aristocracy could be controlled.

The mixed economy framework as developed in India has been trying to reform the
capitalist mode of production in order industrial to promote development, self-reliance,
and equity with emphasis on helping the weaker sections of the society. In other
words, some features of socialist mode of production were integrated into capitalistic
mode of production and distribution so as to maximize the social as well as economic
welfare.

Check Your Progress A

1 State which of the following statements are True or False.

(a) India is now regarded as ope of developed economies in the world.
(b) A very large proportion of Indian population engaged in agriculture.
(c) Unemployment exists in a greater degree in rural areas in India.
(d) Mixed economy framework is basically a compromise between high
degree of sate intervention in socialist economy and free enterprise
capitalistic economy based on market forces.
Economic Environment Barring a few countries, India ranks lowest in the world in matter of per 1
(e)
capital income. I
(0 Indian ranks amongst the first 50 underdeveloped countries in the world

2 Why did India adopt mixed economy model of development ?

.....................................................................................................

3 Enumerate the areas demarcated for the public sector in India during the first four
decades of development.
1
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13.4 ECONOMIC GROWTH AND ECONOMIC

DEVELOPMENT
The terms economic growth and economic development are often used inter-
changeably. But in fact these have different connotations. Let us understand the
distinction between economic growth and economic development.

Economic growth refers to increases over time in the real output of goods and services.
Output is generally measured by gross or net national product (GNP) or national
income. Growth in output can be achieved by the use of larger inputs like land, labour
and capital or by increase in the efficiency of their use. The study of economic growth
is mainly concerned with enlarging the productive capacity of the economy. Dividing
GNP by the total population gives us another measure of growth, i.e. per capita GNP.
Similarly, dividing GNP by the working population provides us a measure of the
productivity, i.e., output per unit of labour.

Economic development is a more comprehensive term. It implies not only a larger

output of goods and services, i.e., a sustained increase in gross national product but
also technical and institutional changes by which it is obtained and distributed.
Economic development brings about changes in the composition of output, i.e., the
relative shares of agriculture, industry and services in GNP and changes in the labour
force (change in the occupational structure). It also means development of '
infrastructural facilities, both economic and social. It may be noted that while
economic infrastructure implies the development of transport and communications,
irrigation, power, housing, water supply and financial institutions (commercial banks,
regional rural banks, Unit Trust of India, Industrial Finance Corporation, Industrial
Development Bank of India and State Financial Corporation), the social infrastructure
implies the development of education and training, and improvement in health
facilities.

Thus, while economic growth merely involves a stress on quantitative measures such as
gross national product and real output per capita, economic development implies
economic grciwth along with changes in the distribution of gross national product and
in the socio-economic structure. It stresses qualitative changes besides quantitative Structure of Indian Economy

improvements in the economy.

According to Charles P. Kindleberger and Bruce Herrick, "Economic growth means

more output, while economic development implies both more output and changes in the
technical and institutional arrangements by which it is produced and distributed.
Growth may well involve not only more output derived from greater amounts of inputs
but also greater efficiency. Development goes beyond this to imply changes in the
composition of output and in the allocation of inputs by sectors." Thus, economic
development implies progressive changes in the socio-economic structure of a country
along with increase in real output per capita over a period of time. It involves a steady
decline in the share of the primary sector in gross domestic product and a
corresponding increase in the share of secondary sector (industry, construction,
electricity, gas and water supply) and tertiary sector (transport, trade, banking, social
and community and personal services). This is normally accompanied by changes in
occupational structure or distribution. In other words, during the process of economic
development, a shift in the proportions of working population engaged in various
sectors takes place along with improvement in the skill and productivity of labour.

In some of the underdeveloped countries, the process of economic growth has been
accompanied by economic development. This, however, may not happen always
because it is quite possible that a country produces more of the same type of goods and
services to keep up with the growing population, while basic structure ofthe economy
remains intact. But, development without growth is unconceivable. A substantial rise
in a country's GNP is required before it can hope to expand its industries, financial
institutions, trade, public utilities, etc.

Most of the underdeveloped countries of today have a colonial past and their growth
pattern is quite similar in many respects. The essence of this pattern of growth is
dualism, i.e., one sectcr or sub-sector experiencing perceptible growth while the rest of
the economy does not. In the absence of any connection with the growth i c t o r s of the
economy, these countries had suffered a long period of stagnation. It would be relevant
to observe that the Indian economy during the British rule experienced a growth rate of
0.5 per cent for the period 1860 to 1945 with practically zero or negativegrowth in per
capita incbme. J.R. Hicks and others conclude: "The low growth rate during the pre-
independence period seems to owe its origin to the decline in per capita income
between 1865 and 1905 and between 1925 and 1950." This necessitated that, in the
post-independence period, Government should make an effort to initiate the process of
development. Various five year plans initiated after 1950 have resulted in raising
growth rates of GNP as well as per capital GNP and also brought about changes in
occupational structure and the distribution of national income over different sectors of
the economy. We shall give a profile of the changes in national income, saving and
investment in the subsequent sections.

13.5 TRENDS IN NATIONAL INCOME GROWTH AND

ITS STRUCTURE
For a comparison of the real growth in national and per capita income, it would be
necessary to compare national income figures at constant prices. Table 13.1 provides
the figures of net national product (NNP) and per capita NNP at 1993-94 as well as
current prices.
Economlc Envlronmcnt Table 13.1 :Net National Product at Factor Cost and Per Capita NNP

Year At 1993-94 Prices At Current Prices

NNP Per NNP Per
(Rs. crores) Capita Index (Rs. crores) Capita
NNP NNP
(Rs.) (Rs.)
1950-51 1,32,379 3,687 100 9,144 255
1960-6 1 1,92,253 4,430 120 15,206 350
1970-71 2,70,623 5,002 136 38,973 720
1980-81 3,63,451 5,353 145 1,18,252 1,742

1990-91 6,14,386 7,323 199 4,50,280 5,367

1995-96 7,87,809 8,499 231 9,41,861 10,160
1999-2000 10,07,769 10,068 273 15,64,142 15,526
2000-200 1 10,50,177 10,306 280 17,02,454 16,707
200 1-2002 11,15,157 10,754 292 1,864,292 17,978
2002-2003 11,61,580 11,010 299 19,86,207 18,825
Rate of Growth
(% p.a.)
1950-51 to 1960-6 1 3.8 1.8 5.2 3.2
1960-61 to 1970-71 3.5 1.2 9.9 7.5
1970-71 to 1980-81 3 .O 0.7 11.7 9.2
1980-81 to 1990-91 5.4 3.1 14.2 11.6
1990-91 to 2000-0 1 5.5 3.5 14.2 12.0
1950-51 to 1980-81 3.4 1.2 8.9 6.6
1980-81 to 2000-0 1 5.5 3.3 14.3 12.0
200 1-02 6.2 4.3 9.5 7.6
2002-03 4.2 2.4 6.5 4.7
Source : Central statistical organisation, National Accounts Statistics

During the 30-year period (1950-5 1 to 1980-81), the average annual growth of national
income (Net National Product) at 1993-94 prices was 3.4 per cent per annum and that
of per capita income was merely 1,2 per cent per annum. Although the Second Five
Year Plan, in its long-term vision, desired that in order to raise the living standards of
the population it would be desirable to double the per capita income by 1977, the
country lagged far behind the target and was able to achieve it by 1990-91, i.e., in a
period of about 40 years. During 1950-51 and 1980-81, the rise in per capita income
was only 45 per cent in a span of 30 years. This implies that our achievement was less
than half the long-term vision made in the Second Plan. However, there was a
significant improvement in the growth rate in the eighties and the nineties. NNP grew
at the rate of 5.5 per cent during the 20-yyr period (1980-81 to 2000-01) and the per
capita NNP grew by 3.3 per cent per annum. As a consequence, per capita income has
increased by about 93 per cent during the last 20 years. This makes an improvement
over our record during the first 30 years (1950-5 1 to 1980-81) of planning. The
economy has reached a health; state of development and has crossed the barrier of the
Hindu rate of growth, to use the phrase coined by late Professor Raj Krishna, of 3-3.5
per cent.

13.5.1 Trends in ~istributionof National Ineolne by Industrial Origin

The composition of gross domestic product changes over time if the country is able to
promote economic development. The greater the pace at which economic development
12
 takes place, the greater is the change in the composition of GDP by industrial origin. Strurtun d Im-lirn Economy
Table 13.2 brings about the changes in the composition of GDP over the last 50 years.

Table 13.2 : Share of Gross Domestic Product by Industrial Origin

(At 1993-94 Prices)
Percentage Distribution
1950-51 1980-81 2001-02
1 Agriculture, etc. 57.7 39.7 23 -9
(a) Agriculture
(b) Forestry
(c) Fisheries

2 Mining, Manufacturing, etc.

(a) b$ning and quarrying
(b) Manufacturing
(i) Registered
. (ii) Unregistered
(c) Electricity, gast and water supply
(d) Construction

3 Transport, Communications and Trade, 1

etc.

4 Finance and Real Estate

5 Community and Personal Services 1 9-11 11.7 13.51

A Commodity Sector (l+2)

B Service Sector (3+4+5)

I
I I I

Total 100.0 100.0 100.0

Source: EPW Research Foundation (2002), National Accounts Statistics of India
(1950-51 to 2000-01).

!
!
The data provided in Table 13.2 reveals that significant changes in the composition of
GDP have been observed during the last 50 years. T h e e changes are:

1 The share of the primary sector which includes agriculture, forestry and fishery
has gone down substantial\y from 57.7 per cent in 1950-5 1 to 23.9 per cent in
2001.02. Since agriculture contributes 93 per cent of share in the primary
sector, it would be desirable to estimate the trend of contribution of agriculture
to GDP. Agriculture alone contributed 50.2 per cent in 1950-5 1, but its share
has come down to 2 1.9 per cent in 2001.02. It is really very disturbing that the
share of forestry which was 6.7 per cent in 1950-51 came down to 1.l per cent
in 200 1-02. This is due to our neglect of the forestry sector. The share of
fisheries has remained stable around 1.0 per cent. This underlines the fact that,
in the primary sector, agriculture is most important and the trend of change in
agricultural output mainly determines the share of the primary sector in the
national product.
Economic Environment 2 The secondary sector is composed of mining, manufacturing, electricity, gas &
water supply and construction. The share of the secondary sector has shown a
steady increase from 14.8 per cent in 1950-5 1 to 23.7 per cent in 1980-8 1 and
further to 26.6 per cent in 200 1-02. Two major components of the secondary
sector are manufacturing and construction. The share of manufacturing
improved from about 9 per cent in 1950-5 1 to about 17 per cent in 200 1-02.
Manufacturing is further sub-divided into registered and unregistered sector.
The share of registered units has gone up from 4.4 per cent in 1950-5 1 to 11.1
per cent in 200 1-02, the share of unregistered manufacturing showed a very
small increase from 4.5 per cent in 1950-51 to 5.8 per cent in 2001-02.
Similarly, the share of construction has marginally improved from 4.1 per cent
in 1950-5 1 to 5.1 per cent in 200 1-02.
3 The tertiary sector (service sector) includes trade, transport, storage,
communications, banking insurance, real estate and community and personal
services. The share of the tertiary or service sector has improved from 28.0 per
cent in 1950-5 1 to 49.5 per cent in 200 1-02. Within this sector, the share of
transport, trade and communications shot up from about 12 per cent in 1950-5 1
to 13.5 per cent in 200 1-02. Besides this, the process of economic growth
involves a rapid expansion of economic and welfare services such as
education, health and family welfare. Consequently, community and personal
services as a group improved their share from 9.4 per cent in 1950-5 1 to 13.2
per cent in 1999-2000. Similarly, the share of finance and real estate which
includes banking and insurance improved from 6.7 per cent in 1950-5 1 to 12.5
per cent in 200 1-02. -

The theory of economic growth also supports the structural change in the composition
of gross domestic product (GDP). The distribution of GDP in developed countries
shows a much higher share of industry and services and a relatively much lower share
of agriculture. The disparity in per capita incomes between developed and
underdeveloped countries is largely a reflection of the disparity in the structure of their
economies. While the developed countries are predominantly industrial in their
structure, developing countries like India are still predominantly agricultural.
However, the fast pace of industrial development has led to an improvement in the
share of the secondary sector, more especially that of industry (manufacturing). The
service sector has also started growing. Its share touched 49.5 per cent in 2001 -02. As
education, health, banking, insurances and communications expand the share of the
service sector is bound to increase.

13.5.2 Urban-Rural Income Break-up

The process of economic development is accompanied by the transfer of population

from rural to urban areas. This brings about a change in the distribution of net domestic
product in favour of urban areas since the per capita NDP in urban areas is higher than
that of the rural areas. Data provided in Table 13.3 reveals that the share of rural sector
in NDP in 1970-71 was 62.4 per cent. It declined to 54.3 per cent in 1993-94. As
against this, the share of urban sector in NDP improved from 37.6 per cent in 1970-71
to 45.7 per cent in 1993-94. The per capita NDP for rural sector was Rs. 529 in 1970-
7 1 and that of urban sector was 1,294. The urban rural disparity ratio was 2.45.
However, this ratio marginally declined to 2.34 in 1993-94 since per capita NDP for
the urban sector was Rs. 13,525 as against Rs. 5,783 for the rural sector. Sector-wise
data for the latter period is, however, notavailable.
 Table 13.3 : Rural-Urban Income Break-up (NDP) Structure of Indinn Economy
(Rs.in crore at current prices)
I
1970-7 1 1993-94
Rural Urban Total Rural Urban Total
Net Domestic 22,937 13,850 36,787 378,791 3 19,201 697,992
Product
(62.4) (37.6) (100.0) (54.3) (45.7) (100.0)
Population (Crore) 43.4 10.7 54.1 65.5 23.6 89.1
Per Capita NDP 529 1,294 680 5,783 13,525 7,834
I (Rs.)
Source: CSO, National Accounts Statistics

13.5.3 Share of Organised and Unorganised Sectors in NDP

Organised sector as defined by the CSO includes all enterprises which are registered or
come under the purview of any of the Acts andlor maintain annual accounts and
balance sheets. Among the unorganised sector are included all unincorporated
enterprises and household industries other than the organised ones which are regulated
by any of the Acts but do not maintain annual accounts and balance sheets.

Table 13.4 : Percentage Share in Net Domestic Product by Organised and

Unorgansied Sectors

1980-81 2000-0 1
Organ~sed Unorganised Organsied Unorganised
1 Agricculture, forestry and fishing 4.8 95.2 3.5 96.5
2 Mining, Manufidcturing, etc. 56.8 43.2 64.2 35.8
3 Services 39.9 60.1 47.1 52.9
Total 30.0 70.0 36.8 63.2
Source: CSO, National Accounts Statistics

Data given in Table 13.4 reveals that share of the organised sector has risen from 30
per cent in 1980-81 to 36.8 per cent in 2000-01, and the share of the unorganised sector
has declined from 70 per cent in 1980-8 1 to about 63.2 per cent in 2000-0 1. The share
of the organised sector in manufacturing, mining, etc. (secondary sector) has improved
from 56.8 per cent in 1980-81 to 64.2 per cent in 2000-0 1. and that of the service
sector from about 40 per cent in 1980-81 to about 47 per cent in 2000-0 1. It is only in
agriculture, forestry and fishing (primary sector) that the share of the organised sector
has slightly decreased from 4.8 per cent to 3.5 per cent during the 20-year period. The
shift in the composition of NDP from the unorganised to the organised sector is a direct
consequence of the process of development.

Check your Progress B

I Why is economic development considered more comprehensive measure of

progress of an economy ?
...................................................................................................
Economic Environment 2 Name the major sectors of the economy whose share in national income declined
during the last 50 years of development. Which sector has shown the highest rise in
its share?

3 Fill in the blanks.

(a) The average annual growth rate of national income during 1980-81 to 2000-01
at 1993-94 prices was per annum and that of per capita was
merely per annum
(b) hir rise in per capital NNP was only in a span of 30 years during
1950-5 1 to 1980-8 1 at 1993-94 prices
(c) The share of agriculture etc. (primary sector) in GDP has considerably
during 20 years period from 1980-8 1 to 200 1-02.
(d) The share of manufacturing in GDP has increased from 14.8% to
during 1980-8 1 to 2001 -02.
(e) The urban rural disparity ratio ofNDP was 2.45 in 1970-71 which marginally
in 1993-94.
(0 The shift in the composition of NDP from unorganised to organised sector is a
direct consequence of the process of

13.6. TRENDS IN SAVINGS AND INVESTMENT

Of all the factors that determine the rate of growth in a country, the rate of capital
formation is considered to be the most important factor. This involves saving and
investment which not only raises the productive capacity but creates a sound base for
further development. The estimates of saving and investment in the post-independence
period have been prepared by two organisations, viz.,the Reserve Bank of India (RBI)
and the Central Statistical Organisation (CSO) from time to time. While preparing an
estimate it is customary to divide the economy into three sectors. These are :
1 Household sector which comprises individual and economic units run on an
individual, partnership or non-corporate basis ;
2 Corporate sector which includes the joint stock companies; and
3 The Government sector which includes the gdministrative departments and the
enterprises run under state control.

If we sum up the net change in the value of assets in a given period in these sectors, we
arrive at the amount of net domestic capital formation. To this, if we add the net inflow
of foreign capital, we arrive at an estimate of net national capital formation for the
economy.

13.6.1 Trends in Gross Domestic Savings

Table 13.5 provides data on the trend in gross domestic saving in the Indian economy
during 1950-5 1 to 200 1-02 at market prices. A close perusal of this data reveals that
the rate of gross domestic savings of the Indian economy has risen considerably though
. not as much as expected. As a percentage of GDP at market prices, the gross domestic
savings improved from 8.9 per cent in 1950-5 1 to 14.6 per cent in 1970-71 and
subsequently reached a level of 23.1 per cent in 1990-91. By 1995-96, the gross
domestic savings touched its peak of 25.1 per cent and, thereafter, it has fluctuated
 - . -

between 23 to 24 per cent with this exception of 1998-99 when it came down to 21.5 ' S t ~ " ~ m 0Indian
f Economy
per cent.
Table 13.5 : Composition of Gross Domestic Savings
-
. .
- - - - - -

I As Percentage of GDP at market prices

/ sector/ I
Private
corporate
( sector 1
I
Public
sector
Total

1950-51 6.2 1 0.9 1 1.8 1 8.9

(69.7) (10.1) (20.2) (100.0)
1960-6 1 7.3 1.6 2.6 1 1.6
1970-71 10.1 1.5 2.9 14.6
'1 980-8 1 13.8 1.6 3.4 18.9
1990-9 1 19.3 2.7 1.1 23.1
(83.5) (1 1.7) (4.8) (1 00.0)
1995-96 18.2 4.9 2.0 25.1
1996-97 17.0 4.5 1.7 23.2
1997-98 17.6 4.2 1.3 23.1
1998-99 18.8 3.7 -1.0 21.5
1999-00 20.8 4.4 - 1.O 24.1
2000-0 1 21.6 4.1 -2.3 23.4
2001 -02 22.5 4.0 -2.5 24.0
p -
(-10.4 100.0
Note: Ratios of savings of individual sectors may not add to total because of rounding off.
Source: ~ ~ 0 , ' ~ a t i oAccount?
nal Statistics,.

It would be of interest to study the shak of different sectors in gross domestic savings
during the last 50 years. The household sector has been the major contributor to gross
domestic savings. Its contribution was 6.9 per cent in 1950-51. It markedly improved
to 19.3 per cent in 1990-9 1 and peaked to a level of 22.5 per cent in 200 1-02. In
relative terms, its share was about 70 per cent of total GDS in 1950-51 which
improved to about 84 per cent in 1990-91 and was of the order of about 94 per cent in
200 1-02.

The private corporate sector contributed 0.9 per cent of GDS in 1950-51, and its share
improved to 2.7 per cent in 1990-91 and to 4 per cent in 2001-02. In relative terms, its
share in total GDS improved from 10 per cent in 1950-51 to about 12 per cent in 1990-
9 1 and further to about 17 per cent in 200 1-02. The share of public sector savings
which was 1.8 per cent of GDP in 1950-51 increased to 3.4 per cent in 1980-8 I.
Thereafter it declined to 1.1 per cent in 1990-91 and deteriorated further to (-) 2.5 per
cent in 2001 -02. The negative contribution of the public sector to savings since 1998-
99 has been a cause for serious concern. The public sector savings have two
components-the savings of the government departments and the savings of the public
enterprises. The deterioration in public sector savings is mainly due to the dissavings of
the government departments. The relative contribution of the public sector savings was
20.2 per cent in 1950-5 1, which declined to 4.8 per cent in 1990-91 and became
negative to the extent of 10.4 per cent in 2001 -02.

13.6.2 Trends in Gross Domestic Capital Formation

Gross Domestic Capital Formation (GDCF) is an indicator of the total investment in an

economy. GDCF is composed of two components,: (i) gross domestic savings (GDS),
and (ii) net capital inflow (CI).
Economic Environment GDCF = GDS + CI
'
Table 13.6 provides information about the trends in gross domestic capital formation
over the last five decades. You will notice that the GDCF was 8.7 per cent of GDP in
1950-5 1. It improved to 26.3 per cent in 1990-91 and reached its peak in 1995-96 to
26.9 per cent. However, it showed a downward trend thereafter and came down to 23.1
per cent to 200 1-02. .d

As for its components, the share of gross domestic savings has shown a continuous
increase but the share of net capital inflow which was of the order of (-) 0.2 per cent in
1950-51 turned positive and reached its peak to 3.2 per cent in 1990-91. Thereafter, the
contribution of net capital inflow declined to 0.6 per cent in 2000-01 and became
negative (-0.3 per cent ) in 200 1-02.

Table 13.6 : Gross Domestic Savings and Gross Domestic Capial Formation

(Rs. crores at current prices)

Gross Domestic Net Capital Gross Domestic
Savings Inflow Capital
(1 (2) Formation
(3 = 1 + 2)
-2 1 866
(0.2) (8.7)
48 1 2,470
(2.8) (1 4.4)
394 7,043
(0.8) (1 5.4)
2,094 29,230
(1.4) (20.3)
16,196 1,49336
(3.2) (26.3)
20,780 3,19,527
(1.8) (26.9)
21,988 4,88,628
(1 .I) (25.2)
12,842 5,08,883
(0.6) (24.6)
-7,286 5,27,9 17
1 (23.4) 1 (-0.3) 1 (23.1) 1
Note: Figures in brackets are percentages of GDP at market prices.
Source: Central Statistics Organisation and Economic Survey (2002-03).

13.6.3 Share of Public and Private Sectors

Public sector was used as the engine of growth during the first four decades of
development. As a result, investment in public sector was stepped up. The main
purpose of public sector investment was to create an industrial base and provide the
necessary infrastructure so that private sector investment was facilitated.

Share of public sector investment improved from 2.8 per cent in GDP in 1950-51 to 9.4
per cent in 1990-9 1. Similarly, the share of private sector investment improved from
7.7 per cent in 1950-51 to 14.7 per cent in 1990-91. Thereafter, the wave of
liberalisation and privatisation, popularly termed as economic reform, restricted the
' role of the public sector. Consequently, the share of public sector in GDCF continued Structure o f Indian Economy
to decline and reached a level of 5.8 per cent in 2001-02. Correspondingly, the share of
the private sector rose further and ranged between 16 and 17 per cent during 1990-91
and 2001-02. (See Table 13.7)
Table 13.7 :Gross Domestic Capital Formation and Adjusted GDCF
(As per cent of GDP at market prices)
Public Private Total Errors and Adjusted
Sector Sector (3) = Omissions GDCF
(1) (2) (1) + (2) (4) (5) = (3) + (4)
I

1950-5 1 2.8 7.7 10.5 -1.8 8.7

1960-61 6.9 7.8 14.7 -0.3 14.4
1970-71 6.4 9.4 15.8 -0.4 15.4
1980-81 8.4 10.3 18.7 1.6 20.3
1 990-9 1 9.4 14.7 24.1 2.2 26.3
1995-96 7.7 18.8 26.5 0.4 26.9
1996-97 7.0 14.9 21.8 2.7 24.5
1997-98 6.6 16.0 22.6 2.0 24.6
1998-99 6.6 14.8 21.4 1.2 22.6
1999-2000 6.9 16.7 23.6 1.6 25.2
2000-0 1 6.4 16.3 22.7 1.7 24.3
200 1-02 5.8 16.5 22.3 0.8 23.1
Source: Central Statistics Organisation and Economic Survey (2002-03)
There is no recognised method of allocating errors and omissions, and as such they
have been separately shown in order tA arrive at adjusted GDCF which is used for all
official purposes and decision-making.
13.6.4 Gross Capital Formation by Industry of Use
To understand gross capital formation by industry of use, the economy is broadly
classified into commodity sector and service sector. The commodity sector includes (a)
agriculture, forestry and fishing, (b) mining and manufacturimg, (c) electricity, gas and
water supply, and (d) construction. The service sector includes: (a) trade, hotels and
restaurants, (b) transport, storage and communications, (c) finance, insurance, real
estate and business services and (d) community, social and personal services.
Table 13.8 : Gross Capital Formation by Industry of Use at 1993-94 Prices
(Rs, in crores)
1950-51 2000-0 1
I Agriculture, forestry & fishing 3,798 (19.3) 19,451 (7.1)
2 Mining & Quarring 178 (0.9) 3,626 (1.3)
3 Manufacturing 3,790 (19.2) 106,446 (38.7)
4 Electricity, gas & water J 439 (2.2) 25,713 (9.4)
5 Construction 123 (0.6) 3,088 (1.1)
A Commodity Sector (1 to 5) 8,328 (42.2) 158,324 (57.6)
6 Trade, hotels & restaurants 2,432 (12.4) 12,802 (4.7)
7 Transport, storage & communications 2,502 (12.7) 35,180 (12.8)
8 Finance, insurance, real estate & - 4,202 (21.3) 33,763 (12.2)
business services
9 Community social & personal services 2,230 (1 1.3) 34,848 (12.7)
B Service Sector (6 to 9) 11,366 (57.8) 116,593 (42.4)
Total 1,96,94 (100.0) 274,917 (100.0)
Note. Figures in brackets are percentage of total GCF.
.-
Source: -Compiled and computed from EPW Research Foundation (2002), National Accounts
Statigtics of India (1950-51 to 2000-01). -
r '
- -
Economic Envimmtot In 1950-51, the share of the commodity sector was 42 per cent and that of the service
sector was about 58 per cent in capital formation. But as economic development with
emphasis on industrialisation gathered momentum in the post-independence period, the
share of the commodity sector in GCF showed considerable improvement. By 2000-01,
it accounted for about 58 per cent as against the service sector which accounted for
about 42 per cent of GCF. Four sectors are very important from the point of view of
gross capital formation-manufacturing (38.7%); transport, storage and
communications (12.8%), community and personal services (1 2.7%); and finance,
insurance and real estate (1 2.2%). These four sectors account for 76.4 per cent of the
total GCF, more than three-fourth of the total capital formation in the Indian economy.

Cheek Your Progress C

1 What are the three sectors into which economy is divided for preparing the
, estimates of gross domestic savings. Which of the three sectors has shown a
promising performance and disappointing performance?
...................................................................................................

2 Why has the composition of savings changed in favour of financial savings during
the last three decades?
...................................................................................................

3 Name the four sectors of Indian economy which account for over three-fourth of
the Gross Domestic Capital Formation.

13.7 ROLE OF THE PUBLIC SECTOR

When India achieved independence, it had practically no capital goods sector, and
infrastructure facilities in the form of irrigation, electric energy, transport and
communications were highly limited.. The private sector, at that time, was not willing
to enter into such areas as they required huge investment and had a long gestation
period. Hence, the Industrial Policy Resolution of 1956 assigned a major role to the
public sector in these areas as is clear from the objectives laid down for setting up
public sector enterprises:

1 To promote rapid economic development through the creation and expansion of

infrastructure;
2 To promote the development of heavy and basic industries to provide an industrial
base to the economy;
 3 To create employment opportunities; Structureof Indian Economy

-3 To promote redistribution of income and wealth;

'

5 To promote balanced regional development;

6 To promote exports on one side and import substitution on the other; and
7 To encourage the development of small and ancillary industries.

I Public sector enterprises in India constitute a major national capability in terms of their
I scale of operation, coverage of the economy, technology used, and stock of human
I capital. There are over a thousand public enterprises, of which about 800 are owned
1
by the states. 1111950-51 there were only 5 industrial and commercial undertakings of
the Central Government with an investment of Rs. 29 crore. As on March 3 1,2003,
this number has gone upto 24 having a total investment of Rs. 3,33,475. The bulk of
this investment (about 53%) was in basic industries like steel, coal, power petroleum,
I fertilisers, etc. and nearly 36% of investment in service sector. It may be noted that this
! excludes the investment in departmental undertakings like railways, posts and
I

I
telegraph, etc. Besides, the state level public enterprises accounted for investment of
! Rs. 1,62,000 crore.Let us now look at the role played by the public secotr in developing
i the Indian economy and meeting its objectives.

Building up strong industrial base : There is no denying the fact that rapid
industrialisation that took place during the first three decades after independence was
mainly due to the public sector. The Industrial Policy Resolution (1956) had reserved
certain industries, viz., atomic energy, arms and ammunition, aircraft, etc. for the
, 'government in the interest of national security. The state also took responsibility for the
development of key industries such as coal, iron and steel, aircraft, ship building, etc.
; The Planning Commission had thought it imperative to undertake a much more

diversif;led'developmentif the Indian economy was to become self-generating, and

there was no alternative but to seek government intervention to undertake the
development of basic and strategic industries, capital goods industries, and even some
consumer goods industries. Fortunately, a strong industrial base has been laid by the
public sector, though there are still several shortcomings and weaknesses which need
remedial action. Somehow, even after economic reforms initiated in 1991, private
sector investment has not been forthcoming in infrastructure and heavy industries.
'
Hence, a consensus has developed that public sector should continue to take
responsibility for infrastructure expansion.

There is a wide spectrum of industries in critical areas in which public sector is

dominant. These are: steel, coal, copper, zinc, heavy machinery, petroleum products,
electricity generation, etc. in which the share of public sector investment ranges I
between 50 to 95 per cent. In these critical areas, some forays have been made by the
private sector, but the dominance of the public sector continues .

Export promotion : Some pubIic sector enterprises have achieved commendable

success in promoting India's exports. The State Trading Corporation (STC) and
Minerals & Metals Trading Corporation (MMTC) were able to promote exports in all
parts of world. Hindustan Steel Ltd., Bharat Electronics Ltd., Hindustan Machine
Tools, etc. are some of the enterprises which are export-oriented. The foreign exchange
earnings of the public sector rose to Rs. 5,830 crore in 1984-85, and zoomed forward to
Rs. 20,890 crore in 2001-02. The role of the public sector in promoting exports is really
creditable.
 Import substitution : Some public sector enterprises were started with the specific
objective of producing goods which were imported. Mention may be made of
Hindustan Antibiotics Ltd. and the lndian Drugs and Pharmaceuticals Ltd. ([DPL)
which were promoted to save foreign exchange and break the stranglehold of foreign
companies in India. Like-wise, Indian Oil Corporation (IOL) and Oil and National Gas
, Commission (ONGC) were created to attain self-reliance and reduce our dependence
on imports. Bharat Electronics Ltd. had also saved foreign exchange by encouraging
import substitution. It can, therefore, be asserted that public sector enterprises helped in
saving foreign exchange and promoting import substitution in critical areas.

Enlarging employment : The functions of the state in the post-independence period

have been enlarged to include developmental administration and operation of public
enterprises. There are two important categories of public sector employment: (a)
government administration, defence, and other community services like health,
education, and research, etc., and (b) public sector proper, i.e., economic enterprises
owned by the centre, state and local governments.

With the expansion of the role of State, public sector employment has been
continuously growing. It was 111 lakh in 1971 and reached a figure of 191 lakh in
2001. But, the employment in the organised private sector did not grow in the same
proportion. As a result the share of public sector in total organised sector employment
improved from 62 per cent in 197 1 to about 71 per cent in 199 1. However, thereafter,
public sector employment grew at a slower pace as compared with private sector
employment, and so it was reduced to 69 per cent of the total in 2001-02 (See Table
13.9).
1
9

Table 13.9 : Public and Private Sector Employment in India

(Rs. in lakh)
Public Sector Private Sector Total 1as%of3
(1) (2) (3)
1971 11 1 67 178 62
198 1 155 74 229 68
199 1 190 77 267 71

Source: Compled from RBI, Handbok of Statistics on Indian Economy (2001) and
Economic Survey (2002-03).

From Table 13.10, it may be observed that 5 1 per cent of the total employment in the
public sector was in government administration, community and personal services and
the balance of 49 per cent was spread in other economic enterprises run by the centre,
state and local governments. The biggest chunk of employment in econamic
enterprises was in transport, storage and communications of the order of 30 lakh and
next in importance was manufacturing (1 4 lakh). About 5 lakh persons employed in
agriculture and other economic activities reflect employment under Employment
Guarantee Schemes.
 Table 13.10 : Employment in Public Sector in 2001 Structure of Indian Economy

, Lakh Per cent

1 Manufacturing 14.3 7.5
2 Transport, storage and communications 30.4 20.1
3 Finance, insurance, real estate and business 12.8 6.7
services
4 Government administration, community, social 98.3 51.4
and personal services
5 Other Services 35.6 18.6
Total 191.4 100.0
Source: Compiled and computed from Government of India, Economrc Suwey (2002-03).

Raising internal resources : Public sector units generate internal resources to finance
their plans of expansion. Internal resources consist of depreciation and retained profits.
Besides, they are also expected to generate surplus to finance the needs of other priority
sectors. In every subsequent plan, public sector generated a larger quantum of internal
resources. During the Sixth Plan (1980-8 1 to 1984-85), internal resources amounting to
Rs. 14,710 crore were generated, implying an annual average of Rs. 2,940 crore.
During the Seventh Plan, internal resources of the order of Rs. 29,750 crore were
generated. During the Eighth Plan, PSUs generated internal resources of the order of
Rs. ' i , 1.2
~ 12 crore, implying an annual average of Rs. 20,292 crore a really creditable
record. During 200 1-02, internal resource generation was of the order of Rs. 52,545
crore. The role of public sector undertakings in internal resource generation has been
quite encouraging.

Contribution to the Central Exchequer : Public sector enterprises are considered to

be the honest tax-payers. They pay to the Government exchequer by way of corporate
taxes, excise duty, custom duty, and other duties. They contributed Rs. 27,570 crore
during the Sixth Plan. Their contribution sharply rose to Rs. 1,33,780 crore during the
Eighth Plan, and to Rs. 2,69,110 crore during the Ninth Plan. Thus, their average
annual contribution rose from Rs. 5,510 crore during the Sixth Plan to Rs. 53,822 crore
during the Ninth Plan.

The upshot of the entire analysis is that the public sector provided an industrial base to
the economy, created and strengthened economic and social infrastructure, promoted
exports, and encouraged import substitution. It contributed about 69 per cent of the
total organised sector employment. It was effective in internal resource generation and
made substantial contribution to state exchequer by way of taxes and duties. However,
the new industrial policy emphasized four important measures for reducing the role of
public sector, viz., (a) reduction in number of industries reserved for the public sector,
(b) disinvestment of shares of a select set of public sector enterprises, (c) the policy
towards sick public sector undertakings to be the same as that for the private sector,
and (d) irnprovelnent of performance through an MOU system by which managements
are granted greater autonomy and held accountable for specified results. In addition,
there is a drastic reduction in budgetary support to sick or potentially sick public
sector undertakings.

13.8 JOINT SECTOR

Dutt Committee ( I 969) recommended the concept of the joint sector. In simple terms,
the joint sector is a form of partnership betwe'ev the private sector and the government.
Joint ownership companies with a majority stake by the Government are classified as
Eco~~ornic
Environment Joint Sector (Public) and those with a majority stake by the private sector are classified
as Joint Sector (Private).

The Annual Survey oflndustries (1997-98) provides data in terms of ownership. Table
13.1 1 provides information on productive capital, value added and employment for the
three sectors, viz., public sector, private sector and joint sector in the corporate sector of
the Indian economy. You will notice that out of the total productive capital invested in
the corporate sector amounting to Rs. 5,86,530 crore, the joint sector accounted for Rs.
71,637 crore, i.e., 12.2 per cent, The share of the joint sector in value added was 12.1
per cent, and its share in total corporate employment was just 6.7 per cent. Thus, the
joint sector is just at an infant stage. The major partness in corporate sector continue to
be the public sector and private sector. The public sector accounts for 32 per cent of
productive capital, 28.4 per cent of value added and 24 per cent of total employment.
As against this, the private sector accounts for 55.6 per cent of productive capital, 59.3
per cent of value added and about 69 per cent of employment. Taking the public and
private sectors together, they account for about 88 per cent of productive capital as well
as the value added, and 93 per cent of the total employment in the corporate sector.

Table 13.1 1 : Structure of Industries in Terms of Ownership and Employment

(Corporate Sector) 1997-98

Productive Value Employment

capital added ('000)
(Rs. crore) (Rs. crore) employees'
1
I Public Sector 1,88,032 44,357 2,3@
(32.0) (28.4) (24.1)

I1 Joint Sector (a + b) 71,637 18,819 668

(12.2) (12.1) (6.7)
(a) Joint Sector (Public) 52,189 13352 428
(8.9) (8.6) (4.3)
' (b) Joint Sector (Private) 19,448 5,467 240
(3.3) (3.5) (2.4)

I Private Sector 3,25,889 92,503 6,838

(55~6) (59.3) (68.9)

IV Unspecified 972 267 31

(0.2) (0.2) (0.3)

Total 5,86,530 1,55,946 9,925

(1 00.0) (1 00.0) (100.0)
Source: CSO, Annual Survey of Industries (199 7-98).

With the policies of liberalisation, privatisation and globalisation unleashed after 1991,
there is a clear shift in favour of the privatesector. It is quite likely that the joint sector
may not grow as the government is no more thinking of promoting it as a compromise
solution.
 - -

Check Your Progress D S t ~ c t u r eof lndlan Economy

I Why was public sector development given importance in the post-independence

period?
....................................................................................................

....................................................................................................
2 Do you think public sector has still a role of play in the era of economic reforms?
...................................................................................................

3 Explain the concept of joint sector?

13.9 LET US SUM UP

Indian economy lips been charaterised as an underdeveloped economy as almost all the
charicteristic feadres of an underdeveloped economy are still present in it. The'per
capita income in \ India, barring a few countries, is lowest in the world, the
unemployment is chronic and the rate of capital formation is discouraging. There are
sharp inequalities in wealth distribtuion, human development index is too low, and
most manufacturing untis are outdated inferior technology.

After independence, isntead of following the capitalistic system or the socialistic

model, India adopted mixed economy framework which accepts the co-existence of
public and private sectors with a greater role for the state to direct the economic
activity and an emphasis on helping weaker sections of economy.

The terms 'economic growth' and 'economic development' are often used
interchangeably but ifi fact these have different connotations. While economic growth
refers to increase id the real output, economic development implies not only a sustained
increase in output but also the technical and institutional changes by which it is
produced and distributed. Thus, economic development entails progressive changes in
the socio-economic structure of a country along with increase in real output per capita .
over a period of time. i

During the 30 year period (1950-5 1 to 1980-8 I), the growth of national income (NNP)
at 1993-94 prices was 3.4% per annum and that of per capita merely 1.2% per annum.
'This, however, improved onsiderably during the last two decades. As for the
1
composition gf gross dome tic product, significant changes are observed during the 50

"h
year period. While the s are of primary sector (agriculture, fisheries etc.) has gone
down substantially, the s are of secondeary sector (manufacturing, constructions, etc.)
shows a steady incread. The share of tertiary sector (services) has also shown
Economic Environo~ent improvement. The per capita income in urban areas is higher (almost double) than that
of the rual area. Similarly, the share of unorganised sector has also gone up which is a
direct consequnece of the process of development.

The rate of gross domestic savings has risen considerably during the last five decades
to which the household sector has been the major contributor. Somehow, in this
respect, the public sector has been a far serious concern as, of late, its contribution has
been negative (-2.5% of GDP). As for the investment, the Gross Domestic Capital
Formation (GDCF) which was 8.7% of GDP in 1950-5 1 had increased to 23.1 % in
2001 -02. When we look at the gross doemstic capital formation by industry of use, we
find that with emphasis on industrialisation, the share of commodity sector improved
from 42.2% in 1950-51 to 57.6% in 2000-01, with manufacturing as the biggest gainer.

The Industrial Policy Resolution 1956 had assigned a major role to public sector with a
veiw to ensure development of basic and capital goods industries, expansaion of
infrastructure facilities, creaton of employment opportunities, promotion of exports,
income and wealth, and balanced regional development. As a result, there are over a
thousand public enterprises in the country, of which 800 are owned by the states,
involving huge investment. This has helped in providing a strong industrial base,
created the necessary economic and social infrastructure, and promoted exports and
import substitution. It has contributed to a considerable increase in employment and
internal resoruces generation with substantial contribution to state exchequer.
However, the new economic policy of liberalisation has emphasised on limiting their
role by reduction in the number of indsutries reserved for the public sector to the
minimum, disinvestment of shares of a select set of public sector enterprises and a
drastic reduction in budgeting support to sick enterprises.

Dutt Committee (1969) had recommended the concept of joint sector, a form of
partnership between the private sector and the government. But, somehow, it did not
click. It accounted for just 12.2% of productive captial, 12.1% of the value added and
6.7% of corporporate employment. In fact, with the policies of liberalisation
privatisation and globalisation unleashed after 1991, there is a clear shift in fauour of
the private sector.

13.10 KEY WORDS

Democratic Socialism : Economic growth with social justice within the framework of
a democratic society, ensuring minmum level for all alongwith a programme of action
reucing economic and social ineuqalities.
Disguised Unemployment :A situation where number of workers on a job is larger
than required. I 1

Economic Development : lncreases in output of goods and services and also the
changes in the technical and institutional arrangements by which it is produced and
distributed.
Economic Growth : Increases over time of the output of goods and services.

Financial Savings : Savings in the form of currency, bank deposits, shares and
debentures, insurance, provident and pension funds, etc.
Gross Domestic Capital Formation :The sum total of gross domestic saving plus
capital inflow from abroad.
 - - -

Human Development Index : Measure of human resource development effortsbased Structure ollndlan Economy

on life expectancy, adult education and combined enrolment ratio, and real per capita

tI GDP.
Organised Sector : It refers to all enterprises which are registered or covered under
the purview of any of the Acts and/or maintain annual accounts and balance sheets.
Physical Savings: Savings in the form house property and equipment in the
possession of households.
Social Infrastructure : Infrastructure in the form of eduacation and health related
facilties.
Unorganised Sector : It refers to all unincorporated enterprises and household
enterprises other than the organised ones that are regulated by any ofthe Acts but do
not maintain annual accounts and balance sheets.

1 13.1 1 ANSWERS TO CHECK YOUR PROGRESS

A 1 (a) False (b) True (c) False (d) True (e) True
I (f) False
. B 3 (a) 5.5%; 3.3% (b) 45% (c) come down (d) 17.8%
(e) Came down (t) development

' 13.12 TERMINAL QUESTIONS

I Why is Indian economy regarded an underdeveloped economy? State its basic

characteristics.

2 What are the two models of development that prevailed in the world on the eve of
India's independence ? Discuss the principal features of the mixed economy
framework that developed in India during the first four decades of development.

3 Comment on the following statement

(a) The trend of growth in net national product during the first three decades of
planning was very slow, it picked up during the last two decades.
(b) The process of economic development is accompanies by the transfer of
population from rural to urban areas. This brings about a change in the
distribution of net domestic product in favour of urban areas.
4 Distinguish between
(a) Economic Growth and Economic Development
(b) Financial Savings sand Physical Savings

5 Explain the concept of 'gross domestic saving' and gross domestic investment'.
Indicate the trend of gross domestic capital formation in the Indian economy and
analyse it industrywise.

6 What were the objectives laid down in Industrial Policy Resolution of 1956 public
sector ? How far had they been achieved ?

Note : These questions will help you to understand the unit better. Try to write
answers for them, but do not submit your answers to the university for
assessment. These are for your practice only.