Page 58 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes The theory of economic growth also supports the structural change in the composition of national
product. The distribution of gross domestic product in developed countries indicates a much
higher share of industry and services and a relatively lower share for 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.
As industrialisation spreads it brings about an improvement in the share of industry and services.
Indian economy is passing through this process of transition from an agricultural economy to
an industrialized one. In this process, a structural change in the composition of national income
is inevitable. This structural change is taking place, though at a slow pace. The main reason for
the slow rate of structural change in domestic output is the slow rate of growth of the
manufacturing output.
As is expected during the process of growth, India also experienced an improvement in the
share of the tertiary sector. This was largely due to an expansion in transport and communication,
banking and insurance and public administration. The rate of growth in all the components of
the tertiary sector was 4.9 per cent per annum during 1950-51 and 1990-91 which was higher
than the overall rate of growth of gross domestic product (i.e., 4.1 per cent) in the economy.
During 2004-05 and 2010-11, the growth rate of tertiary sector has picked up to more than
10 per cent.
There is a sudden jump of the Indian economy to pass on to the stage of a post-industrial
‘service’ economy without completing the phase of industrialisation. This only underlines the
need for strengthening the manufacturing sector by stepping up the process of industrialisation.
The changing structure of national income needs to be further strengthened by stepping up the
programme of industrialisation. This does not imply a neglect of agriculture, but for accelerating
the growth process in agriculture, industrialisation of the economy with emphasis on agro-
based industries and industries supplying inputs to agriculture is a sine qua non. It is only then
that the process of transition of the Indian economy from a developing to a developed economy
will be accomplished.

India’s national income registered a growth rate of 5.4 per cent during the
Sixth Plan (1980-85) with a per capita income growth rate of 3.1 per cent.

(iv) Trends in the share of the public sector
The share of public sector in gross domestic product was 14.9 per cent in 1970-71, it rose to
25.9 per cent in 1993-94 and then declined to 20.8 per cent in 2008-09. The gradual increase in
the share of the public sector is the direct result of the expansion of the economic activities of
the State, both on side of enlarging administrative services and of increasing productive activities
in public enterprises during the first four decades of development. Thereafter, economic reforms
intiated in 1991 stressed the need for restricting the area of operation of public enterprises. It
emphasized phasing out of enterprises incurring losses and withdrawing from such sectors
like consumer goods, hotels etc. which served no social purpose. The factors contributing to the
increase in the share of non-departmental enterprises are the setting up of new industries,
expansion of existing enterprises, nationalisation of coal mining companies, banks and insurance
and the like, and merger of private electricity companies into electricity boards.
(v) Urban and Rural Income Break-up
National Accounts Statistics (1999) and (2006) and give a break-up of the net domestic product
for the rural and urban sectors separately. The data reveal that as against 62.4 per cent of the
total NDP being contributed by the rural sector in 1970-71, its share in NDP declined to 54.3 per
cent in 1993-94. Consequently, during the 23 year period, the share of the urban sector in NDP
improved from 37.6 per cent to 45.7 per cent. The per capita NDP for the rural sector was ` 529

52 LOVELY PROFESSIONAL UNIVERSITY