What is an Economy?

Think of an economy as a country’s system for managing its money and resources. It’s about:

The Indian Economy is the financial system of our country, India. It’s one of the largest and fastest-growing economies in the world.

The Indian economy has a unique blend of features. It is officially known as a developing, mixed economy. Let’s understand what this means.

Characteristic	Simple Meaning & Example
Developing Economy	An economy that is growing and improving. It’s not yet as rich as countries like the USA or Japan, but it’s getting there. Example: We are building more roads, factories, and providing better education and healthcare than before.
Mixed Economy	Both the Government (Public Sector) and private companies (Private Sector) play important roles. Example: Indian Railways is run by the government, while companies like Reliance and Tata are private.
Agrarian Dominance	A large part of our population (nearly half) still depends on agriculture for their livelihood, even though its share in the national income has reduced.
High Population	India is the world’s most populous country. This means we have a large workforce but also the challenge of providing jobs for everyone.
Growth Potential	Because we have a young population and are still developing, there is a huge scope for growth and becoming a major economic power.

The economy is divided into three main types of activities or sectors.

Primary Sector (The “Raw Materials” Sector)
- This sector deals with taking things directly from nature.
- It is the base for other sectors.
- Examples: Farming (agriculture), fishing, mining (like coal or iron ore), and forestry.
Secondary Sector (The “Manufacturing” Sector)
- This sector takes raw materials from the primary sector and makes finished goods.
- It’s also called the industrial sector.
- Examples: A car factory using steel (from mining) to make cars, a textile mill using cotton (from farming) to make clothes, or a bakery making bread from wheat.
Tertiary Sector (The “Services” Sector)
- This sector doesn’t produce goods but provides services.
- This is the largest contributor to India’s national income today.
- Examples: Banking, insurance, transportation (buses, trains), hotels, schools, hospitals, and software services (IT). Your job as a banker falls into this sector.

These are key metrics used to measure the health of an economy.

Gross Domestic Product (GDP)
- Definition: This is the total value of all final goods and services produced within a country’s borders in a specific time period (usually a year).
- Simple Meaning: Think of it as the total income of the country for that year. If GDP is growing, it means the economy is doing well.
Per Capita Income
- Definition: This is the average income earned per person in a country in a year.
- Simple Meaning: It’s calculated by dividing the country’s total income (National Income) by its total population. It gives an idea of the average standard of living.
- Formula: Per Capita Income = National Income / Total Population

Post-Independence (1947-1991): The government controlled most major industries. It was a more closed economy with limited foreign trade.
Post-1991 Reforms: India opened up its economy to the world. This is known as Liberalisation, Privatisation, and Globalisation (LPG). This led to faster growth and more foreign companies coming to India.
Present Day: The focus is on digital transformation (like UPI), “Make in India” (encouraging manufacturing), and improving infrastructure to sustain high growth.

By understanding these basic points, you have a solid foundation for the topic. Good luck with your preparation!

Overview of the Indian Economy