Problems of Indian

Economy
Lecture 7
MAJOR PROBLEMS
• POVERTY
• UNEMPLOYMENT
• LOW HDI
• INFLATION
 Poverty
Poverty is not having enough money or access to resources to enjoy a
decent standard of living; be that the lack of access to healthcare,
education or water and sanitation facilities etc.
Causes :
1. High population growth
2. High level of literacy
3. Lack to access to financial resources
4. Caste system
5. Unemployment
6. Political factors
Vicious circle of poverty
• India is having a well-designed poverty measurement mechanism under the erstwhile Planning
Commission. The Planning Commission was the nodal agency for estimation of poverty. For
setting poverty line and methodology of constructing it, the Planning Commission appointed
Expert Groups from time to time.  For example, the Rangarajan Committee is the latest among
those Expert groups.
• Now NITI Aayog
Measurement of poverty in India
•“
The Task Force on Projection of Needs and Effective Consumption Demand
” by Planning Commission in 1979 defines Poverty Line as per capita
expenditure level at which average per capita per day calorie intake is 2400
calorie for rural areas and 2100 calories for urban areas.
•Suresh Tendulkar panel’s recommendations in 2011-12, the poverty line
had been fixed at Rs 27 in rural areas and Rs 33 in urban areas. About 22%
of the population lives below poverty line.
•Rangarajan committee raised these limits to Rs.32 and Rs.47, respectively,
and worked out poverty line at close to 30%
Antipoverty and employment Programmes
• National Rural Employment
• Rural Labour Employment Generation
Programme
• Jawahr Rozgar Yojana
• Integrated Rural Development Program
(IRDP)
• Pradhan Mantri Gramin Awaas Yojana.
• Food security bill 2013
• Pradhan Mantri Kaushal Vikas Yojna
(2015)
• https://groundreport.in/these-are-the-10-poorest-states-in-india/
• https://
www.downtoearth.org.in/blog/governance/mass-poverty-is-back-in-i
ndia-76348
• https://
www.downtoearth.org.in/news/health/global-hunger-index-india-slip
s-to-107-from-101-behind-all-asian-countries-except-war-torn-afghani
stan-85483
Global Multidimensional Poverty Index -
2022
• Global Multidimensional Poverty Index - 2022 (MPI), released by the 
United Nation Development Programme (UNDP) has revealed that
there are vast inequalities across countries, and among
the poorer segments of societies.
• The MPI captures both the incidence and intensity of poverty and
tracks 111 countries on deprivations across ten indicators in health,
education, and standard of living.
• Multidimensional poor means that poverty is defined not simply
by income, but by a number of indicators, including poor
health, poor quality of work and the threat of violence
Key findings

• Across 111 countries, 1.2 billion people—19.1 percent— live in acute

multidimensional poverty. Half of these people (593 million) are
children under age 18.
• The developing region where the largest number of poor people live
is Sub-Saharan Africa (nearly 579 million), followed by South Asia (385
million
 Multidimensional Poverty Index (MPI
 NITI Aayog has released the Multidimensional Poverty Index (MPI)
https://ophi.org.uk/india-mpi-2021-report/

India's national MPI captures multiple and simultaneous deprivations faced by households across the three macro
dimensions of health, education and living standards.
The India National MPI builds on the 10 indicators of the global MPI to add metrics on maternal health and bank account
under the dimensions of health and standard of living, respectively.

• Findings of the Index:

• Poverty Levels:

• Bihar has the highest proportion of people of the state’s population followed by Jharkhand and Uttar
Pradesh who are multidimensionally poor.
• Kerala registered the lowest population poverty levels, followed by Puducherry, Lakshadweep, Goa
and Sikkim.
• Malnourished People:

• Bihar also has the highest number of malnourished people followed by Jharkhand, Madhya Pradesh,
Uttar Pradesh, and Chhattisgarh.
GLOBAL HUNGER INDEX, 2022
• Global Hunger Index 2019: India ranked lower than Nepal, Pakistan,
Bangladesh
• India is ranked 102 of 117 countries.
• GHI 2020: INDIA: 94th /107
• GHI 2022: India :107/2022
• In the index, India features behind Nepal (73), Pakistan (88),
Bangladesh (75), Indonesia (70) among others. Out of the total 107
countries, only 13 countries fare worse than India including countries
like Rwanda (97), Nigeria (98), Afghanistan (99), Liberia (102),
Mozambique (103), Chad (107) among others.
VIDEO
• https://www.youtube.com/watch?v=7Pw8fTLDFXc
2.Unemployment
• The National Sample Survey Organization (NSSO), since its inception
in 1950, does the measurement of employment / unemployment in
India.
• According to CMIE, the urban unemployment rate was at 9.6 per cent,
and rural stood at 7.8 per August 2019.
• 6.1%in 2017-18
• Rural : 5.3%
• Urban : 7.8%
Types of Unemployment
• voluntary unemployment
• Voluntary unemployment is defined as a situation where
the unemployed choose not to accept a job at the going wage
rate
• InVoluntary unemployment
• involuntary unemployment occurs when those who are able
and willing to work at the going wage rate do not get work.
Seasonal unemployment
• Seasonal unemployment refers to a situation where a number of
persons are not able to find jobs during some months of the year.
• EXAMPLE-: Agriculture is a seasonal activity
Technological unemployment
• Technological unemployment :Unemployment caused by
technological changes or new methods of production in an industry or
business.
• Example: The evolution of the automobile assembly plant. In the
beginning,everything on the line was done by humans in order to
build a car. The assembly line itself was a great technological
innovation. Today, robots are employed for much of thehand-work
humans used to do
Disguised Unemployment
• When more people are engaged in some activity than the number
ofperson required for that, this is called disguised unemployment
• EXAMPLE:
• An agricultural field require 3 laborers but people engaged in this
activity is 6 then this unemployment for 3 labors is called disguised
unemployment
LOW HDI
• India Dropped Two Spots To Rank 131 Among 189 Countries
Human Development Index , 2021
1. Switzerland
2. Norway
3. Iceland

4. Hong Kong
5. . Australia
6. .Denmark
7. Sweden
8. Ireland
9. Germany
10.1Netherlands
11.131 India
• https://
www.thehindubusinessline.com/opinion/columns/from-the-viewsroo
m/why-india-underperforms-on-hdi/article30269129.ece

• http://indianhumandevelopment.weebly.com/causes-of-current-low-l
evels-of-human-development.html
Inflation
• To understand the true nature of inflation in an underdeveloped country, one
has to examine the bottlenecks and gaps of various types, which obstruct the
normal growth process, causing prices to rise with the generation of money
income, without an appropriate rise in the real income.
• Foreign Exchange Bottleneck
• Market Imperfections: An increase in money supply and increased money
income remain unaccompanied by an increased supply of real output,
causing a net price rise of inflationary nature in these economies.
• Capital Bottleneck: In a poor country, there is inflation because, by virtue of
its internal backwardness, it is prone to chronic inflation
• Food Bottleneck: Food bottleneck has created the problem of price
rise of food grains, and it has become the corner stone in the whole
of price structure in the developing economies.
• Infrastructural Bottleneck: Power shortages and inadequacies of
transport facilities in the underdeveloped economies.
• Resources Gap: The resource gap in the private sector, caused by low
voluntary savings and high-cost economy, presses for an over-
expansion of money supply through bank credit which, by and large,
results in an acceleration of inflationary spiral in the economy.
Demand-Pull vs Cost-Push Inflation

•According to the demand-pull theory, prices rise in response to an excess of aggregate

demand over the existing supply of goods and services.

•The inflationary process, described by the demand-inflation theory, implies the following
sequences: increasing demand, increasing prices, increasing costs, increasing income.

•Causes of Demand-pull Inflation

• Increase in Public Expenditure
• Increase in Investment
• Increase in MPC
• Increasing Exports and Surplus Balance of Payments
Cost-push Inflation

• Cost-push inflation, is induced by the wage- inflation process.

• A rise in wages leads to a rise in the total cost of production and a
consequent rise in the price level, because fundamentally, the prices
are based on costs.
Causes of Inflation
• Over-expansion of Money Supply
• Expansion of Bank Credit
• Deficit Financing
• Ordinary Monetary Factors
• High Non-development Expenditure
• Huge Plan Investment
• Black Money
• High Indirect Taxes

• Non-monetary Factors
• High Population Growth
• Natural Calamities and Bad Weather Conditions
• Speculation and Hoarding
• High Prices of Imports
• Monopolies
Effects of Inflation

Effects on Production: A moderate price rise has favorable effect on

inflation.

•Effects on Consumption and Welfare: A galloping inflation is, therefore,

described as the ‘cruelest tax of all.’ In short, inflation is unfair on the
distribution side of economic activity.

•Other Economic Effects

• Deterioration in Savings
• Distortion of the Budget
•Distributional Effects: Inflation redistributes income because prices of all factors do not
rise in the same proportion. Since the effect of inflation on the income of different classes
of earners varies, there are serious social consequences.

•The redistribution of wealth due to inflation is a burden on those groups of people who are
least able to bear it. Concrete effects of inflation on various economic groups as follows:
• Debtors(gain) and Creditors(lose)
• Business Community(Gain)
• Fixed Income Groups(lose)
• Investors ( those who invest in debentures and fixed bearing securuites lose)
• Farmers(gain)
Current inflation in India
• HIGHLIGHTS
• One of the main drivers behind the rise was food inflation
• https://
indianexpress.com/article/opinion/columns/india-inflation-rate-econo
my-trade-data-8286250

• https://
www.hindustantimes.com/business/a-closer-examination-of-india-s-in
flation-story-101634162258609.html
Other problems
• Poor educational standards
• Although India has benefited from a high % of English speakers, (important
for call centre industry) there is still high levels of illiteracy amongst the
population. It is worse in rural areas and amongst women. Over 50% of
Indian women are illiterate. This limits economic development and a more
skilled workforce.
• Poor Infrastructure
• Many Indians lack basic amenities lack access to running water. Indian public
services are creaking under the strain of bureaucracy and inefficiency. Over
40% of Indian fruit rots before it reaches the market; this is one example of
the supply constraints and inefficiency’s facing the Indian economy
• Inequality has risen rather than decreased.
• It is hoped that economic growth would help drag the Indian poor above the poverty
line. However, so far economic growth has been highly uneven benefiting the skilled
and wealthy disproportionately. Many of India’s rural poor are yet to receive any
tangible benefit from the India’s economic growth. More than 78 million homes do not
have electricity. 33% (268million) of the population live on less than $1 per day.
Furthermore with the spread of television in Indian villages the poor are increasingly
aware of the disparity between rich and poor.
• Large Budget Deficit
• India has one of the largest budget deficits in the developing world. Excluding subsidies,
it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows
little scope for increasing investment in public services like health and education
INEQUALITY
• https://www.youtube.com/watch?v=EKoyc7Qx468