Unit – 4 : Indian Economy

Introduction to Indian Economy:-

 Low per capita income.
 Inequalities in income distribution.
 Predominance of agriculture. (More than 2/3rd of India’s working population is engaged in agriculture. But in
USA only 2% of the working population is engaged in agriculture.)
 Rapidly growing population with 1.2% annual change.
 Chronic unemployment (A person is considered employed if he / she works for 273 days of a year for eight
hours every day.) Unemployment in India is mainly structural in nature.
 Low rate of capital formation due to less saving rate.
 Dualistic Nature of Economy (features of a modern economy, as well as traditional).Mixed Economy
 Follows Labour Intensive Techniques and activities.

Agriculture in Indian economy:-

While Indian economy introduction is started, the major focus is always on the agriculture sector. This is because
Indian economy is based on agriculture.52% of the total population of India depends on agriculture.
According to the 2011-2012 survey of Indian agriculture contributes 14.1% of the Gross Domestic Product (GDP). It
was 55.4% in 1950-1951.

India is the second largest sugar producer in the world (after Brazil).
In tea production, India ranks first. (27% of total production in the world).
Wheat production: Uttar Pradesh is the largest producer. Punjab and Haryana is then the second and the third
largest producer of wheat.

Rice production: The principal food grain in India is rice. West Bengal is the largest producer. Uttar Pradesh is the
second largest producer and Punjab is the third largest producer of rice.

Sectors of Indian Economy:-

1. Primary Sector: When the economic activity depends mainly on exploitation of natural resources then
that activity comes under the primary sector. Agriculture and agriculture related activities are the primary
sectors of economy.
2. Secondary Sector: When the main activity involves manufacturing then it is the secondary sector.
All industrial production where physical goods are produced come under the secondary sector.
3. Tertiary Sector: When the activity involves providing intangible goods like services then this is part of
the tertiary sector. Financial services, management consultancy, telephony and IT are examples of service
sector.

What is Macroeconomics?
Macroeconomics is the branch of economics concerned with the overall structure, performance, behaviour, and
decision-making of the economy. Macroeconomics is a broad field, but two specific areas of research are
representative of it.

The first area is concerned with the factors that influence long-term economic growth or increases in national
income. The other is concerned with the causes and consequences of short-term fluctuations in national income and
employment, also referred to as the business cycle.

Concepts Under Macroeconomics

capitalist nation
 A capitalist country is distinguished by sub-urbanized and voluntary economic planning conclusions rather
than consolidated political practices.
 A few aspects of a capitalist financial structure are mentioned to provide a better understanding of the
concept.
The following are the characteristics of a capitalist nation:
 Customers' freedom to choose between goods and services.
  The right of individuals to establish a business to provide goods and services.
 The government's interference is limited.
 The distribution of goods is governed by market forces.

Investment Expenditure
 It is the money spent on charges to create investments. In other words, it is the money spent on capital
goods by households and businesses.
 It is critical in the macroeconomic pursuit of business cycles and long-term economic growth.
 In short, investment expenditure is capable of generating additional income and promoting employment in a
country.

Among the various types of investments are:

 Autonomous investment
 Financial investment
 Real investment
 Gross investment
 Net investment

Revenue
 Revenue is an entity's total income from the sale of goods and the provision of services to customers.
 Revenue can be classified as operating or non-operating.
 The significance of revenue and its acknowledgments is better understood if we are well aware of the factors
considered when determining GDP.
 The GDP (gross domestic product) serves as a measure of a country's economic health.

Significance
 It maintains price stability and addresses major economic issues such as deflation, inflation, rising prices
(reflation), unemployment, and poverty in general.
 It focuses on how the economy as a whole performs and then examines how different sectors of the
economy interact with one another to understand how the aggregate functions.
 Macroeconomic theory can also assist individual businesses and investors in making better decisions by
providing a more comprehensive understanding of the effects of broad economic trends and policies on
their respective industries.
 In macroeconomics, the government is a major subject of study, for example, the role it plays in contributing
to overall economic growth or combating inflation.
 Since domestic markets are linked to foreign markets through trade, investment, and capital flows,
macroeconomics frequently extends to the international sphere.

Conclusion
Macroeconomics is concerned with the overall performance, structure, and behavior of the economy, as opposed to
microeconomics, which is more concerned with the choices made by individual actors in the economy .

Inflation
Inflation is the rate at which the prices for goods and services increase. Inflation often affects the buying capacity of
consumers. Most Central banks try to limit inflation in order to keep their respective economies functioning
efficiently. There are certain advantages as well as disadvantages to inflation.

Inflation refers to the increase in the prices of the goods and services of daily use, such as food, housing, clothing,
transport, recreation, consumer staples, etc. Inflation is measured by taking into consideration the average price
change in a basket of commodities and services over a period of time.

Inflation is calculated in India by the Ministry of Statistics and Programme Implementation.

A simple example would be, suppose a kg of apple cost Rs.100 in 2019 and it cost Rs.110 in 2020, then there would
be a 10% increase in the cost of a kg of apple. In the same way, many commodities and services whose prices have
raised over time are put in a group and the percentage is calculated by keeping a year as the base year. The
percentage of increase in prices of the group of commodities is the rate of inflation.
Causes of Inflation

Inflation is caused by multiple factors, here are a few:

Money Supply
Excess currency (money) supply in an economy is one of the primary cause of inflation. This happens when the
money supply/circulation in a nation grows above the economic growth, therefore reducing the value of the
currency.

In the modern era, countries have shifted from the traditional methods of valuing money with the amount of gold
they possessed. Modern methods of money valuation are determined by the amount of currency that is in
circulation which is then followed by the public’s perception of the value of that currency.

National Debt
There are a number of factors that influence national debt, which include the nations borrowing and spending. In a
situation where a country’s debt increases, the respective country is left with two options:
Taxes can be raised internally. Additional money can be printed to pay off the debt.

Demand-Pull Effect
The demand-pull effect states that in a growing economy as wages increase within an economy, people will have
more money to spend on goods and services. The increase in demand for goods and services will result in companies
raising prices that the consumers will bear in order to balance supply and demand.

Cost-Push Effect
This theory states that when companies face increased input cost on raw materials and wages for manufacturing
consumer goods, they will preserve their profitability by passing the increased production cost to the end consumer
in the form of increased prices.

Exchange Rates
An economy with exposure to foreign markets mostly functions on the basis of the dollar value. In a trading global
economy, exchange rates play an important factor in determining the rate of inflation.

Effects of Inflation
When there is inflation in the country, the purchasing power of the people decreases as the prices of commodities
and services are high. The value of currency unit decreases which impacts the cost of living in the country. When the
rate of inflation is high, the cost of living also increases, which leads to a deceleration in economic growth.
However, a healthy inflation rate (2-3%) is considered positive because it directly results in increasing wages and
corporate profitability and maintains capital flowing in a growing economy.

What Is Gross Domestic Product (GDP)?

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced
within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions
as a comprehensive scorecard of a given country’s economic health.

Though GDP is typically calculated on an annual basis, it is sometimes calculated on a quarterly basis as well. In the
U.S., for example, the government releases an annualized GDP estimate for each fiscal quarter and also for the
calendar year.

Merger
A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a
decision made by two "equals." The combined business, through structural and operational advantages secured by
the merger, can cut costs and increase profits, boosting shareholder value for both groups of shareholders.
Eg. Vodafone and Idea Merger
Takeover
A takeover, or acquisition, on the other hand, is characterized by the purchase of a smaller company by a much
larger one. This combination of "unequals" can produce the same benefits as a merger, but it does not necessarily
have to be a mutual decision.
A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company
in the face of resistance from the smaller company's management. Unlike in a merger, in an acquisition, the
acquiring firm usually offers a cash price per share to the target firm's shareholders, or the acquiring firm's shares to
the shareholders of the target firm, according to a specified conversion ratio. Either way, the purchasing company
essentially finances the purchase of the target company, buying it outright for its shareholders.
Eg. Zomato’s Acquisition of UberEats

What is a new product launch, and how to prepare for it?

Creating a new product is a big thing. It usually takes months of preparation coordination between many people, and
it costs a lot of money. But, none of it matters without people who will use that new product. That’s why launching it
properly is the cherry on top of the process.

A new product launch is a process of introducing a new product to the market. This process includes preparing the
product, positioning it, and communicating it to potential customers using marketing communications.
Eg. Starbucks VIA Instant Coffee