What is the Nature of the Indian Economy?


THE World Bank in its World Development Report (2002) classified the various countries on the basis of per capita Gross National Product.

Developing countries are classified into:

(i) Low income countries with GNP per capita of $755 or less.


(ii) Lower-middle income with per capita GNP of $756 to $2995, upper middle income countries with GNP per capita ranging from $2996 to $9265 and,

(iii) High income countries with per capita GNP of $9266 or more.

According to data given in the World Development Report 2002, in 2000, Low Income Countries accounted for 40.6 per cent of the world population but contributed only 10.9 per cent to total World GNP. The Middle Income Countries constituted 44.4 per cent of world population but accounted for 34.2 per cent of World GNP. These two groups, popularly described as developing economies or underdeveloped economies, comprise about 85 per cent of the world population but account for only 45 per cent of world GNP. Most countries of Asia, Africa, Latin America and some countries of Europe are included in them.

The declared social objective of the Indian development strategy since Independence has been growth with equitable distribution. This was sought to be achieved within the democratic political framework.


The problem was of reconciling growth with equity in a democratic framework. This necessitated the adoption of mixed economy as an institutional form to reconcile the objectives of growth with equitable distribution in a democratic framework.

The second five year stated categorically, “The task before an underdeveloped country is not merely to get better results within the existing framework of economic and social institutions but to mould and refashion these so that they contribute effectively to the realisation of wider and deeper social values”.

These values or basic objectives have been summed up in the phrase “socialist pattern of society” (Second Plan). Essentially, this means that the basic criterion for determining the lines of advance must not be private profit but social gain, and that the pattern of development and the structure of socio-economic relations should be so planned that they result not only in appreciable increases in national income and employment but also in greater equality in incomes and wealth.

Major decisions regarding production, distribution, consumption and investment – and in fact all significant socio-economic relationships – must be made by agencies informed by social purpose. The benefits of economic development must accrue more and more to the relatively less privileged classes Of society, and there should be a progressive reduction of the concentration of incomes, wealth and economic power.


For creating the appropriate conditions, the State has to take on heavy responsibilities as the principal agency speaking for and acting on behalf of the community as a whole. The public sector has to expand rapidly.

It has not only to initiate developments which the private sector is either unwilling or unable to undertake; it has to play the dominant role in shaping the entire pattern of investments in the economy, whether it makes the investments directly or whether these are made by the private sector. The private sector has to play its part within the framework of the comprehensive plan accepted by the community.

Public ownership, partial or complete, and public control or participation in management are specially required in those fields in which technological considerations tend towards a concentration of economic power and of wealth. In several fields, private enterprise can make little headway without assistance and support from Government.

In a growing economy which gets increasingly diversified there is scope for both the public and the private sectors to expand simultaneously, but it is inevitable, if development is to proceed at the pace envisaged and to contribute effectively to the attainment of the larger social ends in view, that the public sector must grow not only absolutely but also relatively to the private sector.

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