Current Challenges Facing Indian Economy Class 12 Notes Economics - CBSE

Unit : 7

What Are Current Challenges Facing Indian Economy ?

The dot mark field are mandatory, So please fill them in carefully
To download the complete Syllabus (PDF File), Please fill & submit the form below.

    (I) Human Capital


    • The way physical resources of the country can be converted into various kind of assets, similarly the human resources can also be converted into human capital by improving their quality.
    • Human capital has been considered to be the stock of skills, abilities, expertise, education and knowledge embodied in the people.
    • Investment in education has been considered to be the most important source for the development of human capital.

    Sources of Human Capital Formation

    • Health
    • On the job training
    • Human Capital Contributes

    Human Capital Contributes

    • It increases the productivity of people
    • Innovations
    • Inventions and technological improvements

    Difference Between Human Capital And Human Development

    Human capital focuses on increasing the productivity of human resources through education and health while Human development believes that education and health are integral to human well-being.

    Bodies Responsible To Manage Education Sector

    • Ministry of education at union level and the state level
    • Department of education
    • National Council Of Educational Research and Training (NCERT)
    • University Grants Commission (UGC)
    • All India Council of Technical Education (AICTE)

    Bodies Responsible To Manage Health Sector

    • It includes Ministry of Health at union and state level, departments of health and various organisations like National Medical Commission and Indian Council for Medical Research (ICMR) etc.
    • During 1952-2014, education expenditure as a percentage of total government expenditure increased from 8% to 15% and as a percentage of GDP increased from 0.64 percent to 4.13 percent.

    Education Sector

    • Education and health have been considered to be the most important contributor in the economic growth of a country.
    • Education commission in the year 1964-66 had recommended that the minimum expenditure on education should be 6% of the GDP.
    • In 2019, Government of India made the right to education as the fundamental right of children in the age group of 6-14 years to free and compulsory education.
    • Due to all these efforts, the male literacy rate increased from 62 % in 1990 to 82% in 2017-18 while female literacy rate increased from 38% in 1990 to 66% in 2017-18. Primary completion rate among males increased from 78% in 1990 to 93% in 2017-18 while this ratio among female was 61% in 1990 which increased to 96% in 2017-18. Youth literacy rate improved from 77% in 1990 to 93% in 2017-18 among males while the ratio among females which was 54% in 1990 increased to 90% in 2017-18.

    (II) Rural Development


    • Agriculture is the major source of livelihood in the rural areas.
    • It is very important because two third of the population of India still resides in rural areas and earn their livelihood from the rural resources.
    • It encompasses all those areas or factors which are very important for the overall development of the village  economy.
    • These factors or areas include the development of human resources, land reforms, development of the productive resources, infrastructure development and other poverty alleviation measures.


    • It is very important for the growth of economy by achieving higher productivity in agricultural sector and non-agriculture sectors.
    • At the time of independence the farmers used to be exploited by the traders and the money lenders in the rural areas by charging exorbitant interest and manipulating accounts.
    • After the formation of NABARD in 1982 and availability of various formal sources of credit, the agriculturists have started getting credit on easy terms.
    • A very important source of credit for poor farmers is the self-help groups. Self-help groups have been proved very effective in women empowerment.

    Agriculture Marketing

    It is a comprehensive process that involves the assembling, storage, processing, transportation, packaging, grading, and distribution of different agricultural commodities across the country.

    Cooperative Marketing

    It has proved to be very effective in helping farmers to realise fair prices for their products.


    • Diversification is the need of the hour in the agriculture sector. Diversification can be seen in two ways, i.e., one, as the change in the cropping pattern and two, the change in the occupation from agriculture to non-agriculture sector or from agriculture to allied activities.
    • Various non-farm activities include agro processing industries, animal husbandry, fisheries and horticulture etc.

    Sustainable Development And Organic Farming

    • Excessive use of pesticides and chemical fertilizers has been a cause of concern from the point of view of sustainable development.
    • Organic farming is the answer to the problems caused by excessive use of chemical pesticides and fertilizers. Organic farming includes all the methods of natural farming that restores, maintains and enhance is the ecological balance.

    Benefits of Organic Farming

    • Preserving the health of the soil
    • Lower cost of production
    • Higher profit
    • Highly nutritional food
    • Possibility of higher exports and higher employment

    (III) Employment


    • Each one of us work to earn a living as well as to achieve a sense of self-worth.
    • Workers are the people who are engaged in economic activities.
    • The worker-population ratio is an indicator which helps us to know the proportion of population that is actively engaged in the productive activities of the country.

    Types Of Workers

    • The people who own and operate their own business organisations or firms are known as self-employed. About 52 percent workforce in India is self-employed.
    • When a worker is engaged in some organisation and is paid on a regular basis then such worker is known as a regular worker. Approximately 23 percent workforce in India belongs to this category.
    • Workers who are not employed in any formal organisation and are not covered under any labour laws then such kind of worker is known as casual labour. Approximately 25 percent workforce in India belongs to this category.

    Distribution Of Workforce

    On the Basis of Gender

    As far as male-female ratio in the work force participation is concerned, we find that 52% males and 17% females are part of the workforce. The female participation in the rural areas is higher as compared to their urban counterparts.

    On the Basis of Sector

    • Approximately 45% workforce is engaged in primary sector, 24% is in secondary sector while 31 percentage  in service sector in 2017-18 in India.
    • In the primary sector, out of total size of the workforce 57% are the female workers.

    Jobless Growth

    • In the 1990s, India recorded the rise in the output without the sufficient rise in the employment opportunities. Such situation is known as jobless growth.
    • In 1972-73, 74% workforce was involved in primary sector while in 2017-18 this ratio is 45%. In the secondary sector, approximately 11 % people were employed in 1972-73 which has increased to 24.4 percent while in service sector where only 15% people were employed in 1972-73 this is increased to 31%.


    Formal Sector (Organised)

    The organisation which employs 10 hired workers or more are called formal sector establishment and the workers working in them are known as formal sector workers. These workers enjoy all the social security benefits as provided by the labour laws.

    Informal Sector (Unorganised)

    The workers who are not employed informal sector are known as informal sector workers. For example, millions of farmers, small shopkeepers, agriculture
    labourers and the workers who are associated with these people are known as informal workers.

    • In 2011-12, 94% of the workforce was involved in informal sector. About 30% among them were women.
    • Workers employed in informal sector neither get regular employment, regular income, any social security nor any protection of tenure etc.

    Employment is the situation of getting engaged in meaningful and remunerative productive activity.


    Unemployment is a situation in which a person who is willing and able to work at the prevailing wage rate does not get any work to do.

    Types of Unemployment

    • Open Unemployment

    It is a situation when a person is not employed at all or who is not able to get employment of even one hour in half a day.

    • Disguised Unemployment

    It is a situation when the marginal contribution of a person in the output is zero.

    • Seasonal Unemployment

    It is a kind unemployment in which a person is employed during certain seasons in a year or for certain time periods only.

    Employment Scheme

    To deal with the problems of rural unemployment, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) was launched in 2005 with the objective to give 100 days’ unskilled employment to the rural labourers.

    (IV) Sustainable Economic Development

    Development that India has achieved has come at a very heavy price, i.e., the price in the form of degradation in environmental quality.


    It includes all the biotic and abiotic factors in the surrounding of human being which influence each other.

    Classification of Environment

    • Biotic factors involve all the living elements like birds, animals, plants, fishes etc.
    • Abiotic elements includes all the non-living elements like air, water, rocks, sunlight etc.
    • The environment can perform its functions only when the rate of extraction of its resources is lesser than the rate of replenishment and the generation of waste is lesser than the assimilating capacity of the environment.
    • Due to the past development activities of humans, the environment has got heavily polluted.
    • Its resources, both the renewable and non-renewable, have got exhausted heavily.

    Negative Impact on Environment

    • Poor Health
    • Decline in air
    • Water quality
    • Global Warming
    • Ozone Depletion

    Global Warming

    It has been caused by the industrial revolution which generated large amount of carbon dioxide and other greenhouse gases through the burning of fossil fuels and deforestation.

    Environmental Pollution

    • Air pollution, water contamination, soil erosion, deforestation and wildlife extinction are some of the most pressing environmental concerns of India.
    • In order to address the two major environmental concerns like water and pollution, the Government of India set up the central pollution control board (CPCB) in 1974.
    • Land degradation in India is taking place due to the loss of vegetation occurring due to deforestation, unsustainable fuelwood and fodder extraction, shifting cultivation, encroachment into forest land, forest fires, overgrazing, non adoption of adequate soil conservation measures, improper crop rotation, indiscriminate
      use of agrochemicals such as fertilizers and pesticides and excess extraction of groundwater etc.
    • Air pollution in India is caused by the vehicles and industrial emissions and construction activities etc.

    Sustainable Development By Unced

    • The concept of sustainable development was emphasized by United Nations conference on environment and development (UNCED) which defined it as development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs.
    • In broad terms, sustainable development is concerned with decreasing the poverty level by providing the lasting and secure livelihoods that minimise resource depletion, environmental degradation, cultural destruction and social instability.
    • Sustainable development is a kind of development that meets the basic requirements of all particularly the poor by providing them sustainable opportunities for employment, food, energy, water, housing etc. and by ensuring growth of agriculture, manufacturing, power and services to contribute towards these things.
    • In 2015, the United Nations determined 17 Sustainable Development Goals (SDGs) to be achieved by the year 2030 by all the member nations.

    Strategies for Sustainable Development

    • Use of non-conventional sources of energy
    • Increased use of LPG and gobar gas in rural areas
    • CNG in urban areas
    • Use of wind power, solar power, Mini-hydel plants
    • Use of bio compost and biopest control in agriculture