NATURE OF INDIAN ECONOMY
Structural and Institutional Features of the
Indian Economy (2025)
1. Structural Features
a. Mixed Economy
● India follows a mixed economic model: the coexistence of public and private sectors.
● The government plays a regulatory, developmental, and welfare role.
● The private sector is dominant in manufacturing, services, and consumer goods.
b. Predominance of Agriculture
● Although its share in GDP is ~17%, agriculture employs ~43% of the workforce.
● Prone to monsoon dependence, price volatility, and low productivity.
● Government schemes: PM-KISAN, PMFBY, e-NAM, Agri Infra Fund.
c. Demographic Dividend
● Young population: Over 65% below 35 years, median age ~29.
● The working-age population (15-59 yrs) is around 67%.
● Massive potential in labor supply, but challenges in skilling and employment.
● Skill India Mission and PMKVY address employability.
d. Uneven Development
● Regional disparities persist (e.g., BIMARU states vs. Southern/Western states).
● Variations in infrastructure, literacy, income, and health.
e. High Informality
● Around 80-90% of workers are employed in the informal sector (as per PLFS).
● Challenges: low wages, lack of social security, and job insecurity.
● Government steps: e-Shram portal, formalization via UDYAM registration.
f. Low Capital Formation
● Gross Capital Formation (GCF) hovers around 29-30% of GDP.
● Nominal per capita income (2024-25 est.): ₹1.97 lakh.
● Causes: low savings, investment bottlenecks, NPA burden (though improving).
g. Dualistic Economy
● Coexistence of traditional (agriculture, handicrafts) and modern sectors (IT, manufacturing).
● Disparity in productivity and wages across sectors.
2. Institutional Features
a. Planning & Policy Institutions
● NITI Aayog: Replaced Planning Commission; promotes cooperative federalism, drives
long-term vision via Strategy Documents, SDG monitoring, AIM (Atal Innovation Mission).
● Supports evidence-based policy, state reforms, and digital transformation.
b. Monetary and Financial Institutions
● Reserve Bank of India (RBI):
○ The Monetary Policy Committee (MPC) targets inflation at 4% ± 2%.
○ Manages liquidity, credit, and foreign exchange reserves (~$ 600 B+ in 2025).
○ Promotes digital payment systems (UPI, CBDC pilot expansion).
● Public and Private Sector Banks: Drive credit and financial inclusion. Focus on priority
sector lending (40%).
● Regional Rural Banks (RRBs): Rural credit facilitators, being recapitalized and digitized.
● Co-operative Banks: Regulated jointly by the RBI and State Governments post 2020
reforms.
● NBFCs & MFIs: Crucial in rural/semi-urban lending, esp. after the post-COVID credit gap.
● Development Finance Institutions (DFIs):
○ NABARD: Apex rural credit institution; supports SHGs, FPOs, RIDF,
micro-irrigation, tribal development.
○ SIDBI: MSME financing, cluster development, credit guarantee schemes.
○ NHB: Housing finance regulator and promoter.
c. Agriculture and Rural Development Institutions
● NABARD: Central to rural infrastructure, agri-financing, financial literacy, SHG-BLP model.
● e-NAM (National Agriculture Market): Promotes a unified national agri-market; over
1300+ mandis integrated.
● FSSAI: Regulates food safety standards.
● APEDA: Promotes agri exports and value chains.
● Agri Infra Fund (AIF): Financing post-harvest & storage infra via PPPs.
d. Industrial & MSME Institutions
● MSME Ministry: Oversees UDYAM registration, ZED (Zero Defect Zero Effect)
certification, CLCS-TUS.
● SIDBI: Credit facilitation and venture support for MSMEs.
● Invest India, DPIIT: Facilitate ease of doing business, the startup ecosystem.
● PLI Schemes: Encourage domestic manufacturing in 14+ sectors (electronics, pharma, solar,
textiles).
e. Social Security and Labor Market Institutions
● EPFO & ESIC: Provide pension and health insurance for formal sector workers.
● e-SHRAM portal: National database for unorganized workers (over 28 crore registrations).
● Skill India Mission: PMKVY, ITIs, NCS for skilling and job linkage.
● Code on Wages, Social Security Code (among 4 labor codes): Awaiting full rollout to
standardize and simplify 40+ labor laws.
f. Regulatory Bodies
● SEBI: Regulates capital markets, ensures investor protection.
● IRDAI: Regulates the insurance sector.
● PFRDA: Oversees National Pension System (NPS).
● TRAI: Telecom sector regulation.
● CERC & SERCs: Power sector regulation.
● CAG, CCI, Lokpal: Ensure transparency, competition, accountability.
g. Digital & Financial Inclusion Infrastructure
● India Stack: Combines Aadhaar, e-KYC, UPI, DigiLocker, and DBT — enabling inclusive,
tech-enabled governance.
● UPI: Over 12 billion monthly transactions (2025); UPI Lite and credit-on-UPI expanding.
● ONDC: Aims to democratize digital commerce by providing open networks for
sellers/buyers.
● Jan Dhan-Aadhaar-Mobile (JAM) Trinity: Key to direct benefit transfers & financial
inclusion.
3. Recent Structural Reforms (till 2025)
● PM Gati Shakti: Integrated infrastructure planning.
● PLI Schemes: Boost domestic manufacturing in ~14 sectors.
● Agri Reforms (Model Acts): Encourage contract farming, e-trading, and private mandis.
● National Monetization Pipeline (NMP): Asset monetization to fund infrastructure.
● Labour Code Implementation: 4 labor codes simplify over 40 laws.
● Digital India Push: 5G rollout, AI policy under Digital India 2.0.
4. Structural Challenges Ahead
● Jobless growth, rural-urban migration, water stress.
● Climate change impact on agriculture and livelihoods.
● Balancing digital advancement with data privacy and inclusivity.
Economic Underdevelopment – NABARD 2025
🔍 Definition
Economic underdevelopment refers to a situation in which an economy exhibits low per capita
income, high poverty and unemployment, technological backwardness, and weak human
development indicators. It is typically due to structural, institutional, and historical causes.
📊 Latest Economic Indicators (2024-25)
Indicator Data (2024-25 est.)
GDP Growth ~6.8% (MoF, April 2025)
Per Capita Income ₹2.01 lakh (~$2,420)
Poverty Ratio ~10.8% (NITI Aayog MPI update)
Unemployment Rate (PLFS) ~6.1%; youth ~17%
Agriculture Share in GDP ~17%
Workforce in Agriculture ~42%
GCF (Gross Capital Formation) ~29.4% of GDP
HDI Rank (UNDP 2024) 132 out of 193
Key Features of Economic Underdevelopment (India - 2024-25)
1. Low Per Capita Income
● Despite high GDP growth, income inequality dilutes its effect on individuals.
● India still ranks as a lower-middle-income country (World Bank classification).
2. Persistent Poverty (Absolute + Multidimensional)
● 10.8% population lives in multidimensional poverty.
● Key deprivations: nutrition, maternal health, school dropout, housing, sanitation.
3. Disguised & Structural Unemployment
● Urban gig jobs are rising, but rural underemployment remains high.
● High informal labor (≈88% of workforce), especially in agri and MSMEs.
4. Overdependence on Agriculture
● Employs 42% of the workforce with low productivity.
● Monsoon dependence + small landholdings = low farmer incomes.
5. Infrastructural Gaps
● Rural logistics, warehousing, cold chains, and healthcare infra are underdeveloped.
● Government push: PM Gati Shakti, Digital India Infra 2.0, rural electrification.
6. Technological Backwardness
● Agri, textiles, logistics, and rural education still lack modern tech adoption.
● Emerging AI, robotics, and EV sectors are urban-centered.
7. Low Human Capital
● Education: Foundational literacy/numeracy still a challenge (ASER 2024).
● Health: Infant mortality & malnutrition above SDG targets in tribal areas.
● Government focus: NEP 2020 roll-out, Ayushman Bharat Digital Mission, Skill India
Digital.
8. Financial and Social Exclusion
● Credit access is limited for SC/ST, women, and marginal farmers.
● Despite Jan Dhan, ~12 crore adults lack a formal credit history (RBI 2024).
● SHG-BLP and FPO promotion by NABARD are bridging this gap.
9. Demographic Pressure
● Population: ~1.44 billion (2025), with 65% under age 35.
● Big potential = Big challenge (job creation, education, housing, health).
10. Inequality and Regional Disparities
● Income Gini Index ~0.37 (World Bank 2024 est.)
● Sharp divide between developed (South/West) and underdeveloped (NE, BIMARU) states.
Structural Causes of Underdevelopment
Category Examples
Historical Colonial extraction, land tenure systems.
Institutional Bureaucratic red tape, weak property rights.
Economic Low investment, informal sector dominance.
Social Gender gaps, caste barriers, and low education in remote areas.
Ecological Climate risk in agri-based regions: water stress.
Govt Measures Tackling Underdevelopment (2024-25 Updates)
1. Viksit Bharat Sankalp Yatra 2047
○ Grassroots development mission across 500+ aspirational blocks.
○ Focus: education, skilling, infra, livelihoods.
2. Aspirational Districts Programme 2.0
○ Focus on real-time governance, e-health, and digital education tools.
3. PM Gati Shakti + NMP
○ Infrastructure multiplier + asset monetization = improved logistics + fiscal space.
4. PLI Schemes Expansion
○ 17 sectors, including green hydrogen, textiles, and medical devices.
5. NABARD-Led Initiatives
○ RIDF, SHG promotion, FPO funding, Climate Resilient Agri Infrastructure, and
rural digital literacy campaigns.
6. Digital Public Infra Push
○ UPI, ONDC, e-RUPI, and JanSamarth are boosting digital and financial inclusion.
7. Women-Led Development
○ 10 crore+ women in SHGs; new schemes for credit, health, and digital skilling.
Opening Up of the Indian Economy – NABARD
2025
Definition
The opening up of the Indian economy refers to the policy reforms initiated in 1991 to liberalize
trade, deregulate industries, and promote private and foreign investment. These reforms marked a shift
from a closed, centrally planned system to a liberalized, market-oriented economy integrated with
the global market.
Timeline & Phases
1. Pre-1991: Closed Economy
● License Raj, import substitution, state-led industrialization.
● FDI is restricted, with high tariff walls and limited private sector participation.
2. 1991 Economic Reforms (LPG Model)
● Triggered by the Balance of Payments Crisis.
● Led by Dr. Manmohan Singh under PM Narasimha Rao.
Key Features of Economic Opening (1991–Now)
1. Trade Liberalization
● Import licensing abolished, tariffs reduced.
● Current Tariff Rate (2024-25): ~15% average (WTO bound).
● Export promotion schemes: RoDTEP, PLI for export-intensive sectors.
2. FDI & FPI Inflows
● FDI inflow (2023-24): ~$83 billion (DPIIT).
● 100% FDI in sectors like telecom, auto, and renewable energy via the automatic route.
● New sectors: Space, Drones, Defence Production.
3. Current Account Convertibility (Partial)
● The rupee has been partially convertible on the current account since 1994.
● Capital account convertibility remains restricted for stability.
4. Financial Sector Reforms
● Banking liberalization: Entry of private banks (e.g., ICICI, HDFC).
● RBI autonomy, market-based interest rates, and development of capital markets.
● UPI revolutionized digital payments (~12 billion/month, 2025 est.).
5. Disinvestment & Asset Monetization
● Disinvestment of PSUs via IPOs, strategic sales.
● National Monetisation Pipeline (NMP): Targets ₹6 lakh crore by 2025.
6. Integration into Global Supply Chains
● Participation in global value chains (GVCs) through PLI, Make in India.
● New FTAs: UAE, Australia; ongoing talks with UK, EU.
7. Digital & Regulatory Opening
● ONDC democratizing e-commerce.
● DPI (Digital Public Infrastructure): UPI, Aadhaar, DigiLocker, Jan Dhan.
● India is emerging as “Data + Digital Capital” of the Global South.
Recent Govt Measures (2024–25)
● PLI Scheme Expansion: Electronics, drones, semiconductors, pharma.
● India-Middle East-Europe Corridor (IMEC): Strategic global trade route.
● Digital India 2.0 & DPI Mission: Digital trade, fintech exports.
● National Logistics Policy: Reduce logistics cost to 8% of GDP (from 13–14%).
● Foreign Trade Policy 2023–28: Shift to rupee trade, services-led exports.
Globalization in the Indian Economy (2024–25) –
NABARD Notes
Definition
Globalization refers to the increasing integration of national economies with the global economy
through trade, investment, capital flows, technology, and people-to-people contact. In the Indian
context, it began post-1991 with economic reforms aimed at opening up the economy to global
markets.
India's Globalization Journey: Key Phases
Pre-1991: Closed Economy
● Import-substitution, License Raj, high tariffs, limited foreign trade/investment.
1991 Reforms – The Inflection Point
● Liberalization, Privatization, and Globalization (LPG model).
● Shift to export-led growth, devaluation of the rupee, and FDI inflows encouraged.
Post-2000s: Deepening Integration
● WTO accession, growth in IT/ITES exports, rise of Indian multinationals (Infosys, Tata).
● Global trade agreements and outward FDI by Indian firms.
2020–25: Digital + Strategic Globalization
● DPI (Digital Public Infrastructure) as an exportable model.
● PLI schemes to integrate India into Global Value Chains (GVCs).
● Focus on rupee trade, resilient supply chains, and Global South leadership.
Key Features of Globalization in India (2024–25)
Feature Current Status / Examples
Trade Openness Trade-to-GDP ratio ~45% (2024 est.)
FDI/FPI Inflows ~$83 billion FDI in 2023–24 (DPIIT)
Digital Trade ONDC, UPI exports, DPI missions
IT/Services Exports ~$350 billion (2024–25 est.)
Global Value Chains (GVCs) PLI in electronics, semiconductors, pharma
Rupee Trade Initiatives 18+ countries onboarded (2024)
FTAs Signed (Recent) UAE (CEPA), Australia (ECTA), ASEAN, and Africa
focus
India-Middle East-Europe Corridor Alternative trade corridor to China’s BRI
G20 Presidency Impact Global South leadership, DPI showcase
Impact of Globalization on the Indian Economy
Positive Outcomes
● Boost in exports (merchandise + services).
● Enhanced foreign reserves (~$650 billion).
● Rise in foreign investments and domestic innovation.
● Integration into global tech & manufacturing ecosystems.
Challenges
Issue Details
Uneven Growth Benefits concentrated in urban & coastal regions.
Jobless Growth High automation, low labor absorption in GVCs.
Import Dependency Electronics, crude oil, and gold – major imports.
Global Shocks Ukraine war, Fed rate hikes, China slowdown.
Role of Institutions in Facilitating Globalization
● RBI: Manages exchange rate, capital flows.
● Ministry of Commerce: FTP 2023–28 for trade promotion.
● DPIIT: FDI facilitation.
● NABARD: Supports agri-export clusters, rural industrialization for global market linkages.
● EXIM Bank: Export financing and international market access.
Globalization & Rural India – NABARD-Relevant Aspects
● Agri-Exports: ODOP, APEDA, organic & millet exports.
● FPO Integration: Market access via eNAM, global food supply chains.
● Agri Startups: Export-oriented innovation in value chains.
● Sustainable Globalization: Climate-smart agri exports, carbon credits in the future.
Economic Reforms in India – 2024–25 | NABARD
Exam-Focused Notes
What are Economic Reforms?
Economic reforms are long-term policy changes aimed at improving the efficiency, productivity,
and competitiveness of the Indian economy. They involve:
● Deregulation,
● Liberalization,
● Privatization, and
● Globalization (LPG).
India's major reform wave began in 1991, responding to a Balance of Payments crisis, and continues
today through structural and sectoral reforms.
Timeline of Reforms
Period Key Focus
1991–2000 LPG Reforms: Industrial deregulation, FDI liberalization, trade reforms
2000–2014 Financial reforms, IT growth, SEZs, and disinvestment
2014–2019 GST, IBC, JAM Trinity, Make in India
2020–2024 Atmanirbhar Bharat, PLI, Digital India, Labor Codes
2024–25 Digital public infra (DPI), Green economy, FTAs, structural rural reforms
Key Pillars of Economic Reforms
1. Liberalization
● Abolition of industrial licensing (except in a few sectors).
● Relaxation in the MRTP (Monopolies and Restrictive Trade Practices) Act.
● Market-determined exchange rate (1993).
● Deregulation of interest rates.
● Fiscal discipline under FRBM Act (updated roadmap till 2025–26).
2. Privatization
● Strategic disinvestment of PSUs (Air India, LIC IPO).
● National Monetization Pipeline (NMP): ₹6 lakh crore target by 2025.
● Policy shift: Government = enabler, not direct business participant.
3. Globalization
● FDI liberalization: 100% in telecom, defence via automatic route.
● Export promotion: RoDTEP, PLI schemes, new FTAs (UAE, Australia).
● India-Middle East-Europe Corridor (IMEC): Strategic global linkage.
4. Tax & Financial Reforms
● GST: Single indirect tax system, 5 slabs, GST Council.
● Insolvency and Bankruptcy Code (IBC): Faster resolution of NPAs.
● Digital Payments: UPI (~12 billion/month), RBI's e-RUPI & CBDC pilot.
● Financial Inclusion: PM Jan Dhan Yojana, Aadhaar, DBT, DigiLocker.
5. Agricultural & Rural Reforms (NABARD-Focus)
Reform Impact
PM-KISAN ₹6,000/year income support to farmers
FPO Promotion Market access and export readiness
e-NAM Digital agri-marketplace
Crop Insurance PMFBY for climate resilience
ODOP & Millet Mission Agro-processing and export boost
6. Structural Reforms (Post-2020)
Sector Reform
Labor 4 consolidated Labor Codes (yet to be fully implemented)
Education NEP 2020: Skill, vocational training focus
Energy Green Hydrogen Mission, solar expansion
Startups Ease of Doing Business 2.0, DPI, startup ecosystem reforms
7. Recent Highlights (2024–25)
● DPI Mission launched for the global export of India Stack.
● PLI Scheme expanded: Green energy, semiconductors, IT hardware.
● Foreign Trade Policy 2023–28: Focus on rupee trade & services exports.
● India as G20 Leader (2023): Voice of Global South, inclusive reform narrative.
● The Carbon Market Mechanism is under development for the green economy push.
Challenges Ahead
● Jobless growth in the formal sectors.
● Rising inequality (urban-rural, digital divide).
● Low female labor force participation (~25%).
● Regulatory hurdles for MSMEs.
● Environmental degradation and climate risks.
● Slow labor code implementation.
Privatization in India (2024–25)
What is Privatization?
Privatization refers to the transfer of ownership, management, or control of public sector enterprises
(PSEs) to private entities. It aims to:
● Improve efficiency,
● Reduce fiscal burden,
● Increase competitiveness,
● Foster market-oriented growth.
Types of Privatization
Type Description
Strategic Sale The government sells the majority stake + transfers control (e.g., Air
India).
Minority Sale Stake sold but government retains control (e.g., LIC IPO).
Asset Monetization Leasing public infrastructure for fixed returns (e.g., NMP projects).
Evolution of Privatization in India
Phase Key Features
1991–2000 Initiation of disinvestment post-LPG reforms.
2000–2014 Slow momentum due to political and social resistance.
2014–2021 Push under “Minimum Government, Maximum Governance”; key PSUs listed.
2021–2023 Privatization policy announced; strategic sector framework defined.
2024–25 Major shift: Many privatization plans deferred, focus on revitalizing PSUs instead of
selling.
Key Policy Shift in 2024–25
The government has paused or cancelled privatization plans for several PSEs, including:
● Madras Fertilizers, Fertilizer Corp of India, MMTC, HLL Lifecare, NBCC, and more.
Instead, it is:
● Infusing capital into sick PSUs (e.g., ₹10,000 crore+ into RINL, Pawan Hans),
● Prioritizing restructuring and operational efficiency,
● Repositioning PSUs to generate dividends and economic value.
🛑 This reflects a retreat from aggressive privatization.
Disinvestment vs. Monetization (Ongoing)
Initiative Status (2024–25)
LIC IPO (2022) Largest IPO by GoI; minority stake sold.
BPCL, CONCOR, SCI Privatization delayed or halted.
National Monetization Pipeline Active – leasing of roads, power lines, telecom assets.
Benefits of Privatization (Theoretical)
● Reduces inefficiency and political interference.
● Mobilizes private capital and innovation.
● Eases fiscal pressure on government finances.
Challenges and Criticisms
Issue Explanation
Political Resistance Unions and parties oppose the sale of national assets.
Employment Concerns Risk of layoffs in profit-seeking private firms.
Undervaluation Fear of strategic assets being sold too cheaply.
Social Equity Private players may neglect non-profitable rural areas.
NABARD Context – Why It Matters
● Privatization of Banks/PSUs can limit rural credit availability.
● NABARD’s role grows in bridging gaps in financial inclusion, cooperative credit, and
infrastructure.
● As privatization slows, public sector support for agriculture and MSMEs remains crucial.
Key Takeaway for 2025
Privatization is no longer the dominant reform narrative in 2024–25. The focus has shifted to:
● Retaining strategic control over key sectors,
● Reforming PSEs internally,
● Ensuring public sector support for inclusive development continues.
