Current Challenges Facing Indian Economy | Chapter 7 Notes

Current Challenges Facing Indian Economy


Poverty is a type of social exclusion that comes when an individual or family fails to get commodities essential for stable living.

It is a state or condition in which a person lacks the financial resources and essentials for a minimum standard of living. His income level from work is so low that basic human needs can’t be met.

Poverty can be measured in two ways: absolute poverty or relative poverty.

Absolute Poverty

It has specific financial outlines, where an individual does not have the financial means to obtain commodities to sustain life.

When a person does not have the minimum amount of income needed to meet the minimum living requirements needed over a period of time. He cannot meet his basic needs such as food, clothing, shelter, safe drinking water, education, healthcare, etc. 

In this type of poverty people who are living below the poverty line are not affected even if the country where they live is economically strong. People living in this poverty have no benefits of the economic prosperity of their country. 

Relative Poverty

Relative poverty is relative to the economic climate. It happens when a household receives 60% of the average household income in their own economy. 

They do have some money, but not enough to afford anything above the basics. These individuals cannot afford the normal activities and opportunities that average earners have access to.

Relative poverty also changes over time as the wealth of a society increases, it increases the amount of resources and income that is necessary for proper living conditions. 

Differences between Absolute Poverty and Relative Poverty

Absolute Poverty    Relative Poverty
Any person not in a position to obtain essential commodities like food, shelter and clothingIt does not concentrate on biological needs but comparison between two people in the environment
Income Level is consideredIt is not considered, as a person will still be considered poor despite meeting his.her basic needs 
It does not include broader quality of life issues or the overall level of inequality in society. People are to an extent well-off, they still cannot afford the same standard of life as other people in society.
Measured using Poverty LineMeasured Using the Gini-Coefficient and Lorenzo Curve
Not possible to completely eradicate    Small margin of success where its eradication is concerned
Quality of life is poor    Quality of life is marginally better, have access to health care services

Main programmes for poverty alleviation: 

Jawahar Gram Samridhi Yojana (JSY): Development of rural areas infrastructure like roads , hospitals etc

National Old Age Pension Scheme (NOAPS): It provides pensions to all old people who were above the age of 60, who could not find themselves and did not have any means of subsistence.

National Family Benefit Scheme (NFBS): This scheme provides a sum of ₹20,000 to the head of the family after the death of its primary breadwinner.

Annapurna: This scheme provides 10  kg of free food grains a month for the eligible senior citizens.

Integrated Rural Development Program (IRDP): To raise families stays below the poverty line by creating sustainable opportunities for self-employment in the rural sector.

Pradhan Mantri Gramin Awaas Yojana: This scheme aimed at creating housing for everyone.

Human Capital Formation

How people become resource

Human capital formation refers to the development of abilities and skills among the population of the country. It can be developed through acquiring and increasing the number of persons who have the skills, education and experience which are critical for the economic and the political development of the country.

It is very essential to transform the liability of the huge size of population into assets. By adopting various measures like by creating a skilled, trained and efficient labour force by providing better education, health care facilities, etc. 

Thus Human capital formation is associated with investment in man and his development as a creative and productive resource.

To develop various sectors, a country should introduce manpower planning for the development of its human resources. It indicates planning of human resources for meeting the development needs of the economy.

For that a country should impart proper education to its population and train its labour force in technology, engineering, management, medicine etc. connected with the development of various sectors of the economy.

The entire process of human resource development demands a long-term policy.

Role of human capital in economic development

Human capital is related to economic growth. The process of educating a workforce is a type of investment.

In order to determine how human capital impacts economic growth, we must consider two key factors.

Consumer Spending Habit:

Consumers are responsible for the economic growth Any country’s economy. When consumers become employed or their wage increases, they tend to increase their purchases of clothes, cars, homes etc. 

All of these spending leads to employment in various industries such as retail, auto manufacturers, etc. The spending also leads to higher GDP growth throughout the economy.

Business Investment:

The increased GDP growth leads to improvements in business conditions. As companies become more profitable, they tend to invest more money to purchase new equipment and technology into their businesses to create business growth. These business investments create economic growth. 

Rural Development

Rural development is an action- plan for the social and economic upliftment of the rural areas. It is the process of improving the quality of life and economic conditions of people living in rural areas.

It focuses on developing area which are lagging behind in overall development of village economy.

Rural development aims to improve rural lives with participation of rural people themselves, so as to meet the required needs of rural communities

Objectives of rural development:

  • Increasing productivity of the agricultural sector.
  • Generating alternative means of livelihood Promoting education and health facilities 

Major issues in rural development.

  • A strong rural credit system 
  • Ensures proper remuneration to the farmer for their produces
  • Diversification of crops that reduce risks of production 
  • Diversification of production activity 
  • Promotion of organic farming 
  • Proper land reforms system
  • Development of human resources e.g. health, literacy, education and skill development.
  • Development of Infrastructure like electricity, irrigation, transport facility, etc.

Rural credit and Agriculture Marketing

Rural Credit

Credit is the life line of farming activity. Farmers require credit for purchasing agricultural tools, machines, digging well, tube wells, seeds, fertilizers, pesticides, etc.

The cost of production between sowing and harvesting is high. So, farmers have to borrow money to fulfill their needs during this period.

Sources of rural credit in India.

Non-institutional sources are money lenders, traders and commission agents, landlords, relatives and friends.

Institutional sources are as follow:

  • Co-operative credit societies.
  • Commercial Banks
  • Gramin Banks
  • Regional Rural Banks
  • NABARD (National Bank for Agriculture and Rural Development)

Agricultural Marketing

It refers to the activities which includes-gathering the produce after harvesting, processing, grading, packaging, storing for future sale and selling the produce when price is lucrative.

It covers the services involved in moving an agricultural product from the farm to the consumer.

Drawbacks of agricultural marketing

  • Lack of warehouses
  • Middlemen involvement
  • Unregulated markets.
  • Lack of Adequate finance
  • Improper means of transport and communication.

Government Measures to improve the marketing system

  • Regulation of markets.
  • Co-operative societies.
  • Warehousing facilities.
  • Subsidised transport.
  • Marketing information.
  • Minimum support price (MSP)
  • Public Distribution System (PDS)
  • Alternative marketing channels
  • Improvement of physical Infrastructure

Role of Co-operative Society in Rural Development

Co-operative society plays a vital role in improving the deprived conditions of rural areas by providing following works:

In rural areas people earn through the activities of farming, fisheries, forestry, and livestock. The agricultural co-operative society actively supports the men and women producers to increase employment opportunities for marginalized groups.

The co-operative society helps in enhancing the quality of fertilizers and provides facilities for product marketing, including storage, processing, transport, and availing modern cultivation techniques.

These societies impart several services to poverty-stricken sections, such as access to advanced technologies, proper training in natural resource management, and boost agricultural productivity by increasing the supply of goods.

Gives financial security to the people performing agricultural activities by co-operatives finance through agricultural funds and credits to strengthen the economic position of farmers.

Organic Farming 

Organic farming is a system farming crop, animals, and other products without the use of synthetic chemical fertilizers and pesticides, or other chemicals. Instead farmers uses organic manure, bio fertilizers and organic pesticides.

Organic farming maintains, enhances and restores the ecological balance. It helps in sustainable development of the agricultural sector.

Advantages of organic farming:

  • Inexpensive process
  • Healthier and tastier food
  • Environment friendly

Limitation of Organic farming:

  • Less Yields then modern agricultural farming
  • Organic produce has a shorter shelf life 
  • Less choices in production of off-season crops 
  • Involves labour-intensive process of production.


Employment is a relationship between two parties viz. employers and employees, usually based on a contract where work is paid for. 

Employers pay for the work and employees work in return for payment, which may be on an hourly basis, or an annual salary, depending on the type of work.

In some sectors employees may receive gratuities, bonus payment or stock options in addition to payment. Other benefits canI be health insurance, housing, disability insurance or use of a gym. Employment is governed by employment laws, organisation or legal contracts.

The nature of employment in India is multifaceted. Some get employment for the whole year or others get employed for a few months in a year. Many of them do not get fair wages for their work.

Terms associated with workers and employment 

Productive Activities: Activities which contribute to the gross national product 

Workforce: Persons who are engaged in productive activities are workers. Workforce is the total number of persons actually working.

Labour Supply: Amount of the workers are willing to work, corresponding to a particular wage rate.

Labour force: All persons, who are working and those who are not working and willing to work at the existing wage rate constitute the labour force.

Work Force Participation Rate(Ratio): It is measured as the ratio between workforce and total population of a country.

Workforce / total population × 100

All productive activities are divided into different industrial sectors, they are as follows:

  • Primary Sector: Includes agriculture, forestry and logging, Ashing, mining and quarrying.
  • Secondary Sector: Includes manufacturing, construction, electricity, gas and water supply.
  • Tertiary Sector: Includes trade, transport, storage and services.

Growth and Changing Structure of Employment

During the period 1960-2000, Gross Domestic Product (GDP) of India grew positively and was higher than the employment growth. 

However, there was always fluctuation in the growth of GDP. During this period, employment grew at a stable rate of about 2%.

Over the years, the quality of employment has gone down. Only a small section of Indian workforce is getting regular income.

The government through its labour laws, enables labourers to protect their rights in various ways. This section of workforce forms trade unions which bargains with employers for better wages and other social security measures.

Workforce can be classified into two categories:

Formal Sectors: All the public and private sector establishments which employ 10 or more workers are called formal sector. Those who work in such establishments are formal sector workers.

Informal Sectors: All other enterprises where workers work is informal sector. Informal sector includes farmers, agricultural labourers, owners of small enterprises etc. 

People working in those enterprises are also called self employed who do not have any hired workers.

Formal sector employees enjoy social security benefits. They earn more than those in the informal sector. Workers in the informal sector do not get regular income and also not having any protection from the government. 

As the economy grows, more and more workers would become formal sector workers. The Indian government has initiated modernizing the informal sector.


It is a situation where a person is ready and willing to work at the prevailing wage-rate but not getting work.

Current Challenges Facing Indian Economy Unemployment

Causes of unemployment:

  • Slow rate of economic growth
  • Population explosion
  • Underdeveloped agriculture
  • Defective educational system
  • Slow growth of Industry
  • Decline of cottage and small industry.
  • Faulty planning
  • Inadequate employment planning.
  • Low capital formation.
  • Excessive use of Foreign Technology
  • Lack of financial resources
  • Increase in labour force

Remedial measures for unemployment:

  • Accelerating GDP
  • Control of population 
  • Development to small scale enterprises.
  • Development in infrastructure.
  • Special employment programmes.
  • Rapid industrialisation.

Special programmes to fight poverty and unemployment:

Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA)

It’s a significant attempt of the government offering 100 days guaranteed employment to those in the rural areas who are below the poverty line.


It is the support system of industrial and agricultural production, and foreign and domestic businesses. Infrastructure is required to run a business smoothly.

Infrastructure is the basic organisational and physical structure that is required to run a business. A basic infrastructure includes communication and transportation, sewage, water, education system, health system, clean drinking water, and monetary system.

A country’s economic and social development is directly related to infrastructure. Many developed countries make a lot of progress due to growth of their economic and social infrastructures. A good infrastructure makes the work process easier, which results a positive and high productivity. 

Types of Infrastructures

Economic infrastructure: This infrastructure of any country or organization is directly related with economic development. 

It includes the basic amenities and services like power, transportation, irrigation, communication, etc. that directly influence and benefit the production process of economic distribution.  

Social infrastructure: It is the basic services that improve individual productivity and achieve social objectives. Social infrastructure sectors like education, health, housing, civic amenities etc.  contribute indirectly to the country’s economic development. 


Energy is the lifeline of all development and production processes of a nation. Rapid growth in the agriculture and industrial sector is not possible without energy supply. 

Energy is essential for agriculture and related areas like production and transportation of fertilisers, pesticides and farm equipment etc. It is also required for cooking, household lighting and heating etc.

Sources of Energy

  • Commercial sources of energy are coal, petroleum and electricity.
  • Non-commercial sources are firewood agricultural waste and dried dung.
  • Conventional sources of energy include both commercial and noncommercial sources of energy e.g. national gas, coal, petroleum etc.
  • Non-conventional sources are renewable resources of energy like biomass, solar energy, wind energy, tidal energy, etc.
  • Electricity: The most visible form of energy, which is identified with progress in modern civilization.

Measures to save energy 

  • Reduce transmission losses.
  • Improve plant load capacity
  • Promote the use of CFLs & LEDs 
  • Encourage private sector participation
  • Encourage use of Non-conventional sources 
  • Biogas generation plants
  • Encouragement to FDI and privatisation 


‘Health is a complete state of physical, mental and social well-being, not merely absence of disease or infirmity’ by WHO.

Health is the holistic process which is related to the overall growth and development of the nation.

Health infrastructure 

There has been significant developments of health services and improvements in health indicators since independence, but it is insufficient for the large population in India.

There is a healthcare utilization gap between rural urban areas and between poor and rich 

Women’s health problems become a matter of great concern with reports of increasing cases of female foeticide and mortality.

Regulated private sector health services can improve the situation and at the same time, NGOs and community participation is very important in providing health care facilities and reading health awareness.

Indian system of medicine (ISDM) AYUSH (Ayurveda, yoga and naturopathy, unani, siddha, homoeopathy) needs to be explored.

At the village level, Primary Health Centres(PHCs) have been set.

India’s Health Infrastructure and Healthcare is made up of a three tier system:-

  • Primary Healthcare
  • Secondary Healthcare
  • Tertiary Healthcare

Primary Healthcare: Promotion of health and provision of essential drugs Immunisation.  It also includes Maternal and child health care.

Secondary Healthcare: These health care institutes are having better facilities for surgery, x-ray, ECG. Patients are referred in secondary Healthcare when their condition is not managed by PHC.

Tertiary Healthcare: Hospitals having advanced level equipment and medicines and undertake all the complicated health problems. 

Expansion of health infrastructure in India has resulted in almost 95 percent eradication of smallpox, polio and leprosy.

Development of health Services in India:

  • Decline in Death Rate
  • Rise in life expectancy 
  • Decline in Infant Mortality Rate
  • Control over Deadly Diseases.

Sustainable Economic Development

Sustainable development is an approach to economic growth and development without compromising with the quality of the environment for future generations.

For economic development, lots of environmental damage has happened in the form of land degradation, soil erosion, air and water pollution, deforestation, etc. These damage may surpass the advantages of having more quality output of goods.

Effects of Economic Growth on Environment 


Increased consumption of fossil fuels can lead to poor air quality

CO2 :

CO2 emissions from industries have contributed to global warming and more volatile weather

Damage to nature:

All kinds of pollution causes health problems and can damage the productivity of land and seas.

Global warming:

Global warming leads to volatile weather patterns, rising sea levels, and could cause significant economic costs.

Soil erosion:

Deforestation for economic development damages soil and makes areas more prone to drought.

Loss of biodiversity:

Economic growth leads to resource exhaustion and loss of biodiversity. 

Long-term toxins:

Economic growth creates long-term waste and toxins, For example, use of plastic, which when disposed of do not degrade. 

Sustainable Development Goals

To promote the kind of development that reduces environmental problems.

To meet the needs of the people without compromising with the quality of the environment for future generations.

Sustainable development can be achieved by restricting human activities. The rate of consumption should not surpass rate of production of renewable substitutes.

Existing Sustainable Developments:

  • Wind energy
  • Solar energy
  • Crop rotation
  • Sustainable construction
  • Efficient water fixtures
  • Green space
  • Sustainable forestry

Frequently Asked Questions

Q1. What is human capital formation?

Answer: Human capital formation refers to the development of abilities and skills among the population of the country.
It can be developed through acquiring and increasing the number of persons who have the skills, education and experience which are critical for the economic and the political development of the country.

Q2. What is sustainable Economic Development?

Answer: Sustainable development is an approach to economic growth and development without compromising with the quality of the environment for future generations.

Current challenges facing Indian Economy Unit 7 CBSE, class 12 Economics notes. This cbse Economics class 12 notes has a brief explanation of every topic that NCERT  syllabus has.

You will also get ncert solutions, cbse class 12 Economics sample paper, cbse Economics class 12 previous year paper.

Final Words

From the above article you must have learnt about ncert cbse class 12 Economics notes of unit 7 Current challenges facing Indian Economy  We hope that this crisp and latest Economics class 12 notes will definitely help you in your exam.

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