Unit 1 Development, Growth and Theories

Structure
1.1 Introduction
Objectives
1.2 Concept of Development and Growth
1.3 Theories of Economic Development
1.4 Structure and Characteristics of Developing Nations
Important Features of a Developing Economy
Economic and Non-economic Factors
1.5 Major Issues of Development and Growth
1.6 Human Development in India
Human Development Index for Various States in India
National Human Development Report (2001)
Progress of Human Development in India
Directions of Policy
1.7 Summary
1.8 Glossary
1.9 Terminal Questions
1.10 Answers
1.11 Case Study
Caselet
Indias HDI Value and its Significance
The Human Development Report of the United Nations Development
Programme (UNDP) for 2013, released in March, has placed Indias Human
Development Index (HDI) for the previous year (2012) at 0.554. This ranking
implies that India has been placed in the medium human development
category, which it shares with Equatorial Guinea. Human development index
(HDI) is a measure for determining improvement in life expectancy, right to
knowledge and a decent standard of living or gross national income per
capita. On the positive side, Indias HDI value jumped from 0.345 to 0.554
between 1980 and 2012, signifying an increase of 61 per cent or an average
annual increase of 1.5 per cent. Life expectancy at birth increased by 10.5
years, mean years of schooling by 2.5 years and expected years of schooling
by 4.4 years. Most important of all, the gross national income (GNI) per
capita increased by 273 per cent. Nevertheless, Indias progress in terms
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of its HDI of 0.554 is less than the average of 0.64 for countries in the medium
human development group.
Source: http://www.thehindu.com/news/national/undp-brackets-india-with-
equatorial-guinea-in-human-development-index/article4510390.ece
(Retrieved on 2 April 2013)
1.1 Introduction
The meaning of rapid economic growth has become increasingly clear in the
modern world. The economically advanced countries generate more output as
compared to the less developed countries of the world. The main problem relates
to the steps or measures which will ensure the economic development of
underdeveloped economies. However, the problem has not found any concrete
solution, although it has attracted the attention of various economists; from Adam
Smith to John Maynard Keynes. While economists have put forward their own
theories and models to find the solution, the problems persist.
In this unit, you will study the concept of development and growth of a
country, the different theories of economic development, structure and
characteristics of developing nations. You will also be presented with an analysis
of human development in India.
Objectives
After studying this unit, you should be able to:
explain the concept of development and growth
differentiate between growth and development
describe the different theories of economic development
identify the features of a developing nation
analyse human development in India
1.2 Concept of Development and Growth
Economic development is the sum of new technologies, a transition phase from
an agricultural-based economy to an industry-based economy and overall
improvement in the standard of living.
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Broadly, alleviation of the problems of underdeveloped countries is called
economic development while alleviation of problems related to developed
countries is referred to as economic growth.
Different economists have distinguished economic development and economic
growth from their own limited angles. Some of the important ones are as follows:
According to A. Maddison (2006) When the income level rises, it is
generally referred to as economic growth in rich countries and in poor
ones it is called economic development. However, it is to be noted that
this observation does not recognize the forces responsible for an increase
in the income levels in the two economies. While discussing this issue,
Mrs. Ursula Hicks (1950) pointed out that the issues related to
underdeveloped countries are mainly related to the development of
unutilized and underutilized resources, even though their uses are well-
known. On the other hand, the major concerns in advanced countries are
related to growth, as most of their resources are already known and
developed to a considerable extent.
The terms development and growth are not related to the kind of economy.
The two terms can be distinguished on the basis of nature and causes of
changes.
Schumpeter (1934) makes the distinction between the two terms explicit.
Development is an irregular and natural change in the static state which
perpetually changes and substitutes the stable state which was existing
previously. Growth is defined as a slow and steady change which takes
place in the long run and is accompanied with the growth of saving and
population. This view of Schumpeter has been increasingly acknowledged
and built on by a majority of economists.
According to Kindleberger (2011), Economic growth means more output,
while economic development implies both more output and changes in
the technical and institutional arrangement by which it is produced and
distributed. When more output is derived with greater efficiency from lesser
amounts of inputs, growth is said to take place, i.e. an increase in output
per unit of input. Development goes one step further to imply changes in
the composition of output and in the allocation of inputs by sectors.
Friedman (2006) defines growth as an extension of the system in one or
more aspects out of a change in its structure, and development as an
innovative process in which the social system gets a structural
transformation.
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When there is an increase in the countrys per capita output, economic
growth is said to have taken place. It is related to quantitative changes, which
means that income is complemented by expansion in labour force, consumption,
capital and volume of trade. On the other hand, economic development is a
wider concept than economic growth.
According to Myrdal (1957), it is related to qualitative changes in economic
wants, good, incentive, institutions, productivity and knowledge or the
upward movement of the entire social system. It describes the underlying
determinants of growth such as technological and structural changes. It
may happen that unemployment, poverty and inequality may continue to
persist due to the absence of technological and structural changes. In
such a scenario, an economy will not develop. An increase in production
and per capita income can be clearly defined as economic growth which
is equivalent to development.
Although vast differences exist between the two terms, some economists
use these terms interchangeably. For instance, Arthur Lewis in his The Theory
of Economic Growth points out that most often we shall refer only to growth or
to output or occasionally for the sake of variety, to progress or to development.
Very simply put, the following differences emerge:
Growth Development
Single dimension i.e. increase in
output alone.
Multi-dimensional i.e. more output and
changes in technical and institutional
arrangements.
Quantitative change i.e. change in
national and per capita income.
Qualitative change i.e. change in
composition and distribution of national
along with per capita income.
Gradual and steady change in the long
run.
Discontinuance and spontaneous
change.
Growth is possible without
development.
Growth to some extent is essential for
development.
Continuous change. Discontinuous change.

Self Assessment Questions
1. There is no difference between growth and development. (True/False)
2. When there is an increase in the countrys per capita output, ____________
is said to have taken place.
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1.3 Theories of Economic Development
Different theories of economic development exist. Some of them have been
described below:
(a) The Wealth of Nations Theory
Adam Smith has been recognized as the leading expounder of economic thought.
Adam Smiths opinions can be prominently seen in the works published by David
Ricardo and Karl Marx in the 19
th
century, and by John Maynard Keynes and
Milton Friedman in the 20
th
century.
The Wealth of Nations, which is a series of five books, sought to determine
the nature and cause of a nations prosperity. Smith observed increasing division
of labour as the main cause of prosperity. Smith was very much opposed to
mercantilismthe practice of artificially maintaining a trade surplus on the
erroneous belief that doing so increased wealth. Adam Smith was of the opinion
that government plays a vital role in promoting a nations prosperity. .Similar to
other modern believers, Smith also thought that the government should put into
effect contracts and grant patents and copyrights to promote inventions and
new ideas. One clear distinction between Smith and most modern believers in
free markets is that Smith favoured retaliatory tariffs. Due to the systematic and
comprehensive study of the subject done until that era, his economic thinking
became the postulate for classical economics.
(b) Theory of Comparative Advantage
The brilliant British economist David Ricardo was one of the most important
figures sought out for the development of economic theory. He articulated and
formulated the Classical system of political economy.
His thoughts dominated the economic world throughout the 19th century
and his legacy continues till today. Ricardos most famous work is his Principles
of Political Economy and Taxation. In 1817, David Ricardo published this book,
in which he presented the law of comparative advantage. This is one of the
most important and still unchallenged laws of economics with many practical
applications.
(c) The Theory of Population
Thomas Malthuss social and economic ideas focussed on his theory of
population. Thomas was of the view that population increases at a faster rate as
compared to the production of food. As a result the number of people in society
will be constantly pressing and creating liability on the means of physical
subsistence. Malthusian theory presented a different opinion from the more
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traditional economic growth theory of Adam Smith. The acceptance of Malthuss
ideas in Smiths doctrine resulted in the incorporation of the most outstanding
features of the classical system of economics. Malthusian population theory
was considered prominent and famous throughout the 19
th
century. However, it
lost its prominence when scholars realized that Malthus had underestimated
the rate of technical change. Malthus did regard serious and cumulative efforts
on the part of the people as an accelerator in the process of economic
development. Acording to him, development of an economy is not an automatic
process.
(d) The Labour Theory of Value
Marx proposed the labour theory of value which suggested that the value of a
commodity is the socially essential labour time invested in it. However, the
capitalist theory of production believed in not compensating workers the full value
of the commodities they produce, but only for the necessary labour (which
included the daily wages of the worker) which is only the bare minimum means
of survival so that he can continue working in his present state and his family in
the future as a groupthe working class.
This necessary labour is only a certain portion of a full working day and
the result of the rest, that is, extra labour goes in the favour of the capitalists.
Marx put forward the idea that the gap between the value a worker produces and
his wage is a type of unpaid labour which is called surplus value.
People are very much aware of commodities but they ignore the
relationship between the value of a commodity and the amount of labour put in
to produce that commodity. Also, Marx observes that markets have a tendency
to ignore the social relationships and processes of production, a fact which he
termed commodity fetishism.
Karl Marx introduced the theory of stages of economic development, which
complemented his theory of class struggle. He categorized economic evolution
into five categories namely, slavery, feudalism, capitalism, socialism and
communism.
(e) The Innovation Theory
Joseph Schumpeter has tried to explain the expansion and contraction of
economy through industrial investigation. Innovation is an actual application of
invention; whereas invention is discovery of something. Invention converts into
innovation.
In this theory, innovation can be introduction of new product, finding of a
market source of raw material, or opening of a new market in business. For an
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entrepreneur to be designated as an innovator; he has to have the knowledge to
do something new, daring and have the foresight to get ahead of others and in
this pursuit, he demand funds from the banking system.
In this theory, Schumpeter opined, an innovation can take the economy to
disequilibrium from equilibrium and this will continue till the new equilibrium
position is reached.
(f) The Linear Theory of Development
Rostows theory was considered a step-by-step ladder process for an
underdeveloped country to become a developed country. It was segregated into
five stages and was considered a linear theory.
(i) Stage one was referred to as Traditional Society. The traditional society
is characterized by the sovereignty of agriculture, which is largely at the
level of subsistence, accompanied by the non-realization of possible
resources.
(ii) Stage two is titled Transitional Stage or otherwise known as the pre-
conditions for take off.
(iii) Stage three is called the Take off Stage; which is considered the most
important stage for a country.
(iv) Stage four is referred to as the Drive to Maturity. This stage depicts a
sea change. The entire country grows, traditional lifestyles become extinct
and new industrialization encourages migration from rural to urban areas.
(v) Stage 5 is called High Mass Consumption. This is the final stage of
economic development, where the initial idea of survival is no longer
needed because by this stage all obstacles appear to have been cleared,
now there is more time for leisure.
(g) The BigPush Theory
Professor Paul N. Rosenstein-Rodan is the architecture of the bigpush theory.
The thesis relies on the assumption that a big push or a large comprehensive
programme is needed in the form of a high minimum amount of investment to
overcome the obstacles to development in an underdeveloped economy in order
to launch it on the path to progress.
Rosenstein-Rodan distinguishes between three different kinds of indivisibilities
and external economies:
(i) Indivisibilities in the production function, especially the indivisibility of the
supply of social overhead capital;
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(ii) Indivisibility of demand; and
(iii) Indivisibility in the supply of saving.
(h) The Critical Minimum Effort Theory
Critical minimum effort theory is one of the balanced growth theories. It was
propounded by H. Leibenstein in 1957. It explains how a minimum amount of
push is needed by an economy for it to be set on the path of development. This
push can be in the form of investments. This theory is called critical minimum
effort because the minimum amount of endeavour that is required is critical for
the economy to move towards development.
One more reason is the high population in underdeveloped countries due
to which the capital accumulation and labour supply are not competent enough
to increase the per capita income. So it is necessary that the initial investment
levels are sufficiently above a minimum magnitude. Though it is also correct
that all such measures are not equally viable to raise the per capita income,
some are just too Lilliputian or below the minimum required level. Now, since this
type of investment sometimes becomes extremely complex for underdeveloped
nations, Leibenstein elaborated that the investment can be spread over a period
of time and does not necessarily have to be made instantaneously.
Self Assessment Questions
3. Adam Smith was recognized as the leading expounder of economic
thought. (True/False)
4. Thomas Malthuss social and economic ideas focussed on his theory of
________.
Activity 1
As an economics student, you have been asked to find out the theory that
relates to Indias growth story. How will you analyse the growth path?
Hint: The answer lies in the thought: Is there just one economic theory that
can be attributed to Indias growth?
1.4 Structure and Characteristics of Developing Nations
Developing economies lie somewhere between developed and underdeveloped
economies. Features of both the developed and underdeveloped economies
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are found in a developing economy. Developing economies include India,
Pakistan, Brazil, Indonesia and most of the Asian countries.
1.4.1 Important Features of a Developing Economy
Some of the important features of a developing economy are given below:
(i) Dominance of agricultural sector: Agriculture is the major source of
income in undeveloped and developing economies. Such economies are
also, therefore, known as agrarian economies. A large section of the
population earns a living by tilling the land.
(ii) Small and large scale of production: Both the private and public sectors
exist in the economy side by side. Goods are produced on large scale
and on small scale as well by public and private sectors.
(iii) Production for self-consumption: A large amount of goods and services
produced are consumed by the producers themselves. Self utilization of
resources is also one feature that is prominent in such economies. Majority
of farmers grow crops for their own consumption.
(iv) Illiteracy: Another important feature of a developing economy is the huge
gap between the educated and the uneducated. Illiteracy is widespread in
such economies. Efforts are continually being made to eradicate illiteracy,
and yet illiteracy and unskilled labour are widely dominant.
(v) Underutilization of resources: No doubt God has gifted developing
economies with significant amounts of natural resources and large
numbers of labour forces. But the unfortunate part is that due to lack of
technical knowledge, natural resources are not discovered or fully utilized.
Similarly, labour force is either unemployed or underemployed.
(vi) Preference for labour intensive industries: Unemployment and
underemployment are one of the major problems of developing economies,
so small scale and cottage industries mushroom which absorb large
number of hands but large industries do not find any place to grow which
further retards the growth of developing economies.
(vii) Vicious circle of poverty: Poverty gives rise to a vicious circle in a
developing economy. Due to poverty there is low income, lesser
investment, lesser production and the result is abject poverty once again.
Developing economies find it very difficult to break this vicious circle.
International organizations like IMF, UNESCO, UNICEF and World Bank,
from time-to-time, extend monetary assistance to such economies.
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As stated earlier, the Indian economy is also considered a developing
economy. We have achieved considerable amount of industrialization at a fast
rate. In certain industrial and technological fields, we are at par with the developed
economies.
1.4.2 Economic and Non-economic Factors
Economic factors
Measures and reforms related to economic and business environment directly
affect the economic environment of any economy. Recently, the Indian
government initiated various economic policies. As such, the impact of these
reforms brings about changes in business and industry in the following:
(i) Buyers market
(ii) Export is required for survival
(iii) Corporate vulnerability
(iv) Threat from multinational companies
(v) Overall competition
(vi) World class technology
(vii) Future not guided by past failures
Competition, reduction in cost, up-gradation of technology, improvements in
quality and customer convenience have all led to surplus production of goods.
All these changes have been made indirectly through the buyer, on whose demands
the market trends are based and who is thus considered the sovereign of the market.
Implementation of new trade policy has linked imports to exports. The
enterprises are required to earn foreign exchange by exports and use the
same foreign exchange for importing raw material, spares and equipments.
Due to pressure from multinationals, Indian companies are facing problems like
takeover, subordinate position in joint venture, unequal battle among the
competitors and financial weakness.
Threat from
multinational
companies
The entry of multinational companies into the largely unorganized Indian market is threatening
the very survival of small-scale and indigenous producers. Due to the present policy of
liberalization of our government the vast the resources and the modern technology of the
multinational companies have enabled their subsidiary Indian companies to boost sales
and enjoy strategic advantage over their competitors.
Corporate
vulnerability
Export is
required for
survival
Buyer's
Market
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Changes in government policy regarding business and industry have provided us with
world class technology. Indian companies have also started making considerable
investments in research and development.
Ensuring growth in the future would require new strategies, robust technologies,
determined efforts, enthusiasm, organisation and leadership. These must be in
place in order compete with the multinationals.
Future must
be guided by
past failures
World class
technology
There is tough competition among multinationals and there is also a competition
between Indian enterprises and foreign enterprises. Competition has now become
global in scope.
Overall
competition
Non-economic factors are those which do not have any direct relation with the
economic development of a country. Some of the important non-economic factors
are as follows:
(i) Religion
(ii) Ethnicity
(iii) Social interactions
(iv) Non-economic political considerations
(v) Indirect effect
Religion
The worshiping of religious figures by members of a community have
no direct effect on the economy of the country.
No role is played by ethnicity in the economic activity of an individual
neither it has any influence on the economic development of a country. Ethnicity
Social interactions
The right of people to happiness enables them to socialize,
communicate and join with different members of the community.
Political activities which are not aimed to have a particular
economic impact are considered as non-economic factors.
Non-economic
Political
Considerations
Indirect effect
Despite being purely social, non-economic factors can have particular
economic impact. Their indirect effect is determined by the nature of the
social activity that individuals are exercising.
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Self Assessment Questions
5. Exports are the major source of income in undeveloped and developing
economies. (True/False)
6. The Indian economy is also known as a _________ economy.
Activity 2
You are a student of economics and have been asked by your professor to
identify the main characteristics of a developing economy.
Hint: Take the example of India.
1.5 Major Issues of Development and Growth
India is currently an underdeveloped, although developing economy. According
to the 2010 data provided by the United Nations Development Programme,
approximately 37.2 per cent of Indians live below the countrys poverty line. Poverty
is not only acute but also chronic. At the same time, there exists unutilized
resources. The co-existence of the vicious circle of poverty with the vicious
circle of affluence perpetuates misery and foils all attempts at removal of poverty.
It is in this context that an understanding of the major issues of development
should be made. The following are the major development issues in India:
Low per capita income and low rate of economic growth
High proportion of people below the poverty line
Low level productive efficiency due to inadequate nutrition and malnutrition
Imbalance between population size, resources and capital
Problem of unemployment
Instability of output of agriculture and related sectors
Imbalance between heavy industry and wages
Imbalance in distribution and growing inequalities
This diverse pattern of development was, of course, the product of a number
of historical, cultural, and other circumstances peculiar to the country. Underlying
these special circumstances, however, were certain forces that economists
have found to be central to the growth process in general. These underlying
forces have to do with size, quality, and organization of a countrys basic
productive apparatus.
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1.6 Human Development in India
Elucidating the concept of human development, UNDP Human Development
Report (HDR) (1997) describes it as the process of widening peoples choices
and the level of well-being they achieve are at the core of the notion of human
development. Such theories are neither finite nor static. But regardless of the
level of development, the three essential choices for people are to lead a long
and healthy life, to acquire knowledge and to have access to the resources
needed for a decent standard of living. However, human development does not
end there. Other choices highly valued by many people range from political,
economic and social freedom, to opportunities for being creative and productive
and enjoying self-respect and guaranteed human rights.
Elucidating further, HDR (1997) states: Income clearly is only one option
that people would like to have, though an important one. But it is not the sum
total of their lives. Income is also a means, with human development as the
end.
Even after the publication of the Human Development Report 1990, that
was prepared under the guidance of Mahbul-ul-Haq, attempts have been made
to plan and further enhance the measures of human development. These
measures have been devised: Human Development Index (HDI), Gender-related
Development Index (GDI) and Human Poverty Index (HPI).
1.6.1 Human Development Index for Various States in India
Most of Indias states are comparable to medium-sized countries. Hence, it
would be suitable to create the human development index (HDI) for various states
to comprehend the differences in HDI among them. A report was published by
the UNFPA on human development in India, in a book entitled India: Towards
Population and Development Goals in 1997. The book is a detailed and reliable
source of basic data on population and development in India. The book focuses
on the idea that factors like population, poverty, patterns of production and
consumption and the environment are closely interlinked and, therefore, cannot
be studied in isolation. This idea is largely based on the fresh approach to
population and development policies discussed at the 1994 International
Conference on Population and Development (ICPD).
Mahbub-ul-Haq, the main architect of UNDP Human Development Report,
in his book Human Development in South Asia (1997), also carried out a study
of human development in the various states of India. The UNFPA in its study
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used three dimensions of human development: (i) The index of life expectancy,
(ii) the index of per capita income i.e. per capita state domestic product, and (iii)
the index of education based on literacy rate and school enrolment ratio. Mahbub-
ul-Haq also considered three similar dimensions of human development with a
minor difference that he used only the literacy rate in his index of education in
the study instead of the indicator of school enrolment ratio.
The index of quality of life was constructed based on the five indicators: (i)
Access to safe drinking water, (ii) electricity connection, (iii) enjoyment of two
square meals a day throughout the year, (iv) residence in pucca houses and
(v) ratio of availability of beds in public hospitals to total population.
Table 1.1 Major State-wise Alternative Studies of
Human Development in India (HDI)
Value of HDI as studied by
Rank State UNFPA (1997) Haq (1997) Guha (1988-94)
1. Kerala 62.8 (1) 59.7 (1) 74.3 (1)
2. Maharashtra 55.5 (2) 51.3 (3) 59.2 (2)
3. Punjab 54.9 (3) 51.6 (2) 57.3 (4)
4. Tamil Nadu 51.1 (4) 43.2 (8) 57.5 (3)
5. Haryana 50.5 (5) 47.4 (4) 53.7 (5)
6. Gujarat 47.82 (6) 45.8 (5) 52.5 (6)
7. Karnataka 46.83 (7) 44.2 (7) 52.2 (7)
8. West Bengal 45.4 (8) 45.2 (6) 51.3 (8)
9. Andhra Pradesh 41.3 (9) 39.3 (9) 46.8 (9)
10. Assam 39.5 (10) 37.4 (10) 44.2 (10)
11. Madhya Pradesh 36.7 (11) 34.1 (15) 41.5 (14)
12. Orissa 37.2 (12) 36.8 (11) 43.2 (11)
13. Rajasthan 37.1 (13) 35.03 (13) 42.5 (12)
14. Uttar Pradesh 35.5 (14) 34.3 (14) 41.06 (15)
15. Bihar 34.05 (15) 35.04 (12) 42.1 (13)
Notes:
1. States have been arranged on the basis of UNFPA study in the descending order of HDI
2. Figures in brackets indicate respective statewise ranks
Sources:
1. UNFPA, India: Towards Population and Development Goals, OUP, 1997
2. Mahbub-ul-Haq, Human Development in South Asia, OUP, 1997
3. Biswajit Guha, Human Development in India: Study of Inter-state Disparity, Indian
Economic Association, Conference Volume (1998)
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1.6.2 National Human Development Report (2001)
Planning Commission brought out the National Human Development Report
(2001) which has presented state-wise as well as All-India Human Development
Indices for 1981, 1991 and 2001. Due to non-availability of data, HDI for 2001
has been calculated for only 15 major states.
Although National Human Development Report (NHDR) also uses the same
broad attainment dimensions as the UNDP Human Development Report, namely,
longevity, educational attainment and economic attainment, it has made
departures from UNDP indicators.
Table 1.2 HDI for Rural and Urban Areas of All India
1981 1991 2001 2012
Rural 0.263 0.340
Urban 0.442 0.511
Combined 0.302 0.381 0.472 0.519
Source: National Human Development Report 2001, Hindustan Times, 8 May, 2013
It may be noted that HDI for India has been improving from 0.302 in 1981
to 0.381 in 1991 and further to 0.519 in 2012. Since HDI was less than 0.500
even in 2001, India continued to be a low HDI country when judged by international
standards as late as 2001.
1.6.3 Progress of Human Development in India
The HDI 2011 has classified India as a medium human development country.
The HDI has risen slowly from 0.406 in 1975 to 0.510 in 1990 and stands at
0.554 in 2012. The very fast growth of population is being recognized as the key
obstacle to the progress of human development in India. Urbanization is an
important aspect which promotes human development. In absolute terms, urban
population was 285 million in 2001 and is expected to reach a level of 407 million
in 2015. Compared to China, which has improved its adult literacy rate to 90.9
per cent in 2005, India lags behind considerably at 61 per cent in this very important
area of human development. Another important indicator is the combined Gross
(primary, secondary and tertiary) Enrolment Ratio, which was only 61.0 per cent
in 2005 in India. As far as the youth literacy rate is concerned, it was 76.4 per
cent in 2005.
The basic purpose of planning in India is to widen peoples choices and
improve the well-being of people. In this context, human development was the
key issue so that people could lead a long and healthy life, they could acquire
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knowledge so as to have a better vertical mobility in life and last, but not the
least, to achieve a decent standard of living. It would be therefore, appropriate to
examine the progress of human development in India from various aspects.
Health Indicators
Life expectancy at birth has shown a continuous improvement from 50.7 years
during 1970-75 to 66.0 years in 2000-07. However, the possibility at birth not
surviving to age 40 is 15.5 per cent in 2005-10. The survival rate has considerably
improved in India. In 1970, infant mortality rate per 1,000 live births was 127; it
has been brought down to 53 in 2007. These are healthy developments. Likewise,
maternal mortality rate per 1,00,000 live births have been brought down to 254
during 1985-2007. Control of diseases and improvement in hospital facilities
has contributed to improvement in survival rate. Life expectancy at birth of females
in 2005 was 65.3 years, but for males, it was 62.3 years. GDP per capita of India
was $ 3,452 in 2005 (PPP US $). The average annual growth rate of GDP during
1980-90 was 5.8; it declined to 4.2 per cent during 1990-2005.
In a nutshell, it may be stated that HDI of India has improved from 0.406 in
1975 to 0.554 in 2012, but India still has miles to go before she can enter the
group of high human development countries. But the process of development
has to accelerate the pace of human development so that India can feel proud
to be a member of high human development countries.
1.6.4 Directions of Policy
As suggested by the Human Development Report (1996), India should follow a
pattern of development which should promote (i) employment generating growth
(ii) equitable growth (iii) participatory growth (iv) grassroot growth and (v)
sustainable growth. If such a pattern of development is fostered, then it would
be possible to avoid lopsided development.
In the Indian situation, we have striking contrasts and the states show wide
variations. A few examples will illustrate:
1. Higher human development with relatively lower income Kerala
2. Lower human development at higher income Haryana
3. Fast economic growth and slow human development Rajasthan
4. Mutually reinforcing growth and human development Punjab, Gujarat,
Tamil Nadu and Maharashtra and West Bengal.
5. Mutually depressing growth and human development Madhya Pradesh,
Uttar Pradesh, Odisha and Bihar.
Economic Planning and Policies Unit 1
Sikkim Manipal University Page No. 17
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Economic Planning and Policies Unit 1
Sikkim Manipal University Page No. 18
Self Assessment Questions
7. India has been categorized by the Human Development Report 2007/2008
as a medium human development country. (True/False)
8. ___________ the main architect of UNDP Human Development Report in
his book Human Development in South Asia, (1997) also carried out a
study of human development in the various states of India.
1.7 Summary
Let us recapitulate the important concepts discussed in this unit:
Economic development is the sum of new technologies, a transition phase
from agricultural based economy to industry based economy and
improvement of the standard of living.
Different theories of economic development exist such as Adam Smith
theory, Ricardian theory, Malthus theory, Marx theory, Schumpeter theory,
Rostows theory, Big-push theory and Critical minimum Effort theory.
Important features of a developing nation are dominance of agricultural
sector, small and large scale of production, production for self-
consumption, illiteracy, under utilisation of resources, preference to labour
intensive industries, and vicious circle of poverty.
Ever since the publication of the Human Development Report 1990 under
the guidance of Mahbul-ul-Haq, efforts have been made to devise and
further refine measures of human development. Three measures have
been developed. They are Human Development Index (HDI), Gender-
related Development Index (GDI) and Human Poverty Index (HPI).
1.8 Glossary
Per capita income: It is defined as the national income divided by the
total population of the economy.
Savings: It is defined as the difference between income and expenditure.
Investments: It is defined as that part of savings which is further used for
capital formation.
Economic Planning and Policies Unit 1
Sikkim Manipal University Page No. 19
1.9 Terminal Questions
1. Differentiate between development and growth.
2. Briefly describe the Critical Minimum Effort Theory and Rosenstein-
Rodans Thesis.
3. Write short notes on (a) Adam Smith Theory (b) Schumpeter Theory.
4. List the main characteristics of developing economies.
5. Identify the economic and non-economic factors which play a role in an
developing economy.
6. Analyse human development in India.
1.10 Answers
Self Assessment Questions
1. False
2. Economic growth
3. True
4. Population
5. False
6. Developing
7. True
8. Mahbub-ul-Haq
Terminal Questions
1. Development and growth are at times used interchangeably. For more
details, refer section 1.2.
2. Critical minimum effort theory is one of the balanced growth theories.
Rosenstein-Rodans Thesis: Professor Paul N. Rosenstein-Rodan is the
architecture of The bigpush theory. For more details, refer section 1.3.
3. (a) Adam Smith theory: Adam Smith was designated as the leading
expounder of economic thought.
Economic Planning and Policies Unit 1
Sikkim Manipal University Page No. 20
(b) Schumpeter Theory: Joseph Schumpeter has tried to explain the
expansion and contraction through industrial innovation.
For more details, refer section 1.3.
4. The main characteristics of developing economies are:
Dominance of agricultural sector
Small and large scale of production
Production for self-consumption
Illiteracy
Under utilization of resources
Preference to labour intensive industries
Vicious circle of poverty
For more details, refer section 1.4.
5. The economic factors are:
(i) Buyers market
(ii) Export is required for survival
(iii) Corporate vulnerability
(iv) Threat from multinational companies
(v) Overall competition
(vi) World class technology
(vii) Future not guided by past failures
The non economic factors are:
(i) Religion
(ii) Ethnicity
(iii) Social Interactions
(iv) Non-economic political considerations
(v) Indirect effect
For more details, refer section 1.4.
6. Elucidating the concept of human development, UNDP Human
Development Report (1997) describes it as the process of widening
peoples choices and the level of well-being they achieve are at the core
of the notion of human development. Such theories are neither finite nor
static. For more details, refer section 1.6.
Economic Planning and Policies Unit 1
Sikkim Manipal University Page No. 21
1.11 Case Study
A Step towards Breaking the Vicious Circle
With the sole objective of bringing light into the lives of nearly one billion
rural people, the LaBL Campaign, managed by The Energy and Resources
Institute (TERI) of India, has been able to replace kerosene and paraffin
lanterns with solar lighting devices. The twin objective of the campaign is:
1. Taking solar lanterns as a non-polluting means of night illumination.
2. Making such service self-sustainable.
It was in the year 2008 when this campaign was initiated and has so far
been able to cater to the needs of almost 3,50,000 poor families. The
success story can be counted from the number of lanterns it has produced
and the benefits being reaped by the number of villages. TERI has so far
installed around 70,000 lanterns and 1400 solar charging stations in about
1500 villages.
The benefits so far can be extended by facilitating daily chores, educational
activities, livelihood activities, and better access to health and sanitation
facilities.
The users are required to pay a minimal amount for reaping the benefits,
which is used by the entrepreneur for managing the charging station.
Discussion Questions
1. To what extent do you think will the initiative be effective in breaking the
vicious circle of poverty?
2. Do you think that such an initiative by TERI will set an example for others
to follow?
Source: Compiled by author
References
Misra S.K, Puri V.K. (2010). Economic Environment of Business, Himalaya
Publishing House.
Financial Development and Economic Growth: Views and Agenda- Ross
Levine, University of Virginia, Journal of Economic Literature Vol.
XXXV(June 1997): pp 688-726.
Maddison, Angus (2006). The World Economy: A Millennial Perspective,
Paris: OECD Publications.
Economic Planning and Policies Unit 1
Sikkim Manipal University Page No. 22
Kindleberger, Charles P. (2011), Manias, Panics and Crashes: A History
of Financial Crises, Hampshire: Palgrave Macmillan.
Friedman, Benjamin M. (2006), The Moral Consequences of Economic
Growth, UK: Vintage Publishers.
Myrdal, G. (1957), Economic Theory and Underdeveloped Regions,
London: University Paperbacks.
Schumpeter, Joseph A. (1934) The Theory of Economic Development:
An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle,
University of Illinois.
Lewis, William Arthur (2006) The Theory of Economic Growth, Oxon:
Routledge.
Mehta, Asoka. (1970). Economic Planning in India, New Delhi: Young India
Publications.
E-References
http://theoryofeconomics.com/market-economy/government-expenditure/
(Retrieved on 8 May 2013)
http://www.hindustantimes.com/News-Feed/India/India-ranks-134-in-
human-development-index/Article1-764014.aspx (Retrieved on 8 May 2013)