India is a developing country striving to fulfil the basic needs of housing, elementary education, food facilities, and minimal health care. Eradication of hunger, poverty and unemployment are three significant challenges faced by the Indian economy from the time of independence to this date.

Although we have a large population, most individuals are unskilled and offer a limited contribution to valued sectors of the economy. Market fluctuations such as inflation, the digital economy’s tax challenges, or GST implementation challenges are serious threats to growth and development. 

For the economy to develop and grow, the national income should rise with the increase in population. However, it is often a colossal task to meet the increasing demands of a growing population with a simultaneous advancement in economic growth. 

Major challenges of the Indian economy

• Unequal distribution of income has led to low per capita income. Economic progress slows down due to poverty.

• According to a report by IBEF as per data collected in the year 2021-22, almost 58% of the working population of India is involved in ‘agro-related’ activities, thus generating a huge dependence on agricultural income. However, only 18% are involved in active farming, which creates a situation of high instability. 

• The increasing population has led to an increasing economic burden on India. This is caused by the high birth rate and falling death rates.

• The rate of capital formation is slow.

• Underemployed and unemployed people are increasing, leading to the country’s brain drain. It is caused by deficiency of capital, lack of education, and lack of growth in skill development sectors of the economy.

• 1% of the Indian population has a wealth of 58% of India. This shows inequality in the distribution of wealth.

• Slow technological development and investment in the technology sector have led to a low level of technology. 

• The population density of India is around 400 people per square kilometre. Hence, the dependency burden is very high.

• There is slow growth in the production capacity of goods and services due to the poor quality of human capital. 

• Despite being rich in natural resources, we fail to utilise them efficiently due to a shortage of capital, lack of modern technologies, unskilled labour, and the presence of inaccessible regions in the country.

• India had spent the first few years of the five-year plan fixing basic issues such as protection against starvation, vaccination of individuals, housing facilities, etc. This shows that a majority of the population still suffers from the lack of basic amenities, proving it is challenging for the country to provide for all.

• Lack of proper infrastructural development and facilities leads to underutilisation of resources and shortage of skilled labour and capital. This again results in slower growth of the economy.

Challenges faced by the Indian economy at the time of independence

Today India faces challenges in space technology and research in science and healthcare. In comparison, the challenges faced by the Indian economy at the time of independence were primarily due to the underutilization of minerals and other resources and the poor state of agriculture. The country had to take immediate action to deal with poverty, untouchability, communalism, discrimination, regionalism, and infrastructural development.

Only after solving the fundamental problems to maintain an average standard of living could the challenges faced by the Indian economy at the time of independence lessen. The country now had time to address the issues of illiteracy, corruption, the status of women and infrastructural and technological advancement.

Development lessons after 60 years of independence

• Due to inequalities in class and caste, India has seen a disparity in terms of income and welfare opportunities. Development should address the needs of individuals directly, if not immediately.

• No single policy can bring about development; a comprehensive approach is required where multiple policies are adopted.

• To achieve the required development after the challenges faced at the time of independence, India has to attain microeconomic stability.

• Socially responsive and inclusive policies should be adopted for sustained development.
• India cannot achieve all its objectives at the end of every five-year plan. Some objectives are repeated unless a percentage of the goal is acquired.

Tax challenges of the digital economy 

One of the major tax challenges of the digital economy arises from the fact that most MNCs operate without a physical presence. This has been further solidified with the pandemic and work-from-home culture. 

Thus, the taxation systems need to be updated to consider digitally operating businesses and transactions. This will prevent discrepancies in tax burden with those still following the guidelines of a traditional economy. If unchecked, such disparities can provide a monopolising effect on digital corporations. 

Challenges of GST implementation in the Indian economy

The Goods and Services Tax was introduced as a new form of taxation for the Indian economy on 1st July 2017, replacing the multilayered Central and State imposed value-added tax system. 

There were several noticeable challenges to GST implementation in the Indian economy. The small and mid-size enterprises (SMEs) had to bear the taxation brunt. Exporters are required to first pay in full for all inputs, and refunds can be received only after filing tax returns. This reduces the working capital and puts an unnecessary burden on marginally profitable businesses.

Conclusion

The first step to understanding the challenges of the economies in India is studying the three questions of production – what to produce, how to produce, and for whom to produce. Although the country is forever faced with monumental challenges, its nature has evolved and changed over time. The nature of poverty is not the same as it was 70 years ago. Students must keep abreast of the evolving economic conditions for a complete understanding of how the Indian economy works.