An underdeveloped economy is defined as an economy which has got unexploited natural resources and unutilized human resources. In other words, it is an economy, having a potentiality to grow. An underdeveloped economy shows the following features:

(a) In the underdeveloped countries, natural resources remain unexploited and underexploited due to various reasons. Systematic utilisation of natural resources alone can lead to -economic development.

(b) An underdeveloped country is basically a primary producing country, engaging its factors of production to produce only raw materials and foodstuffs. The percentage of population engaged in. agricultural sector is very high (70% in Indian context) and a major part of total national income comes from agriculture and activities allied to agriculture (around 30% in India).

(c) In case of UDCs, the scarcity of capital is both the cause and effect of low productivity and underdevelopment. Due to scarcity of capital, a better technique of production cannot be adopted in India due to undeveloped technology total volume of production and productivity is low. Due to low production and productivity, level of income is less, and consequently, less amount of capital is available to adopt better technique of production. Thus, poverty is both the cause and the consequence.

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(d) A chief feature of an UDC like India is its high population pressure. The high birth-rate and low death-rate are responsible for a break-neck rise in Indian population. At present, the annual growth rate of population according to 2001 census stands at 2.13%. This rapid growth of population stands as an obstacle in the smooth development of the economy.

(e) UDCs are characterized by low per capita income and grinding poverty scenario. In India, the per capita income is less than 1/3 of the per capita income of the developed western countries, and, according to the revised estimate of the Planning Commission about 50% of the total populations in India live below the poverty line.

(f) The underdeveloped countries are also characterized by widespread unemployment, underemployment and disguised unemployment. In India large numbers of people engaged in the agricultural sector are underemployed or disguisedly unemployed, apart from the large number of white- coloured unemployed, existing in the register of Employment Exchanges.

(g) The underdeveloped economies are also backward in the field of human resources. In these countries, the quality of people as productive agent is very low. There is low labour efficiency, lack of entrepreneurship and economic ignorance. People being illiterate are guided by blind beliefs, customs and traditions. People become fatalists and believe that man’s fortune is decided by fate and not by one’s own efforts.

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(h) In these economies, there is a lack of infrastructural facilities like transport, banking, health, power, education and information technology. People also adopt an outdated technique of production which results in low productivity.

To sum up India as ah underdeveloped economy is characterized by abundant, but unexploited natural resources, a high population growth rate, a slow rate of capital formation, an outdated technique of production, and a low standard of living, accompanied by continuous and sustained efforts to raise it through a proper utilisation of available natural, human, financial and entrepreneurial resources.

In this context, the term ‘economic development has to be defined as launching a measure against the triple enemies of Indian economy, namely, hunger, ignorance and epidemics. The planners of the country have tried to solve these problems and to accelerate the pace of economic development under various Five Year Plans.