Unit 1: Basic issues in Economic Development

Q. What do you mean by under development economy? Explain the basic characteristics of an underdeveloped economy.

Q. Define economic development. How it is measured? (Qualitative and quantitative methods of measuring economic development.)

Q. Distinguish between economic growth and economic development.

Q. How would you measure whether a country is developed or underdeveloped?

Q. What are the basic problems of Indian Economy? (Features of an Indian Economy)

Q. What is human development? What are its elements?

Q. What is Human Development? Explain the concept of human development index. How human development index is calculated? What is the position of India in the world human development index?

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The term ‘development’ refers to the process of improving the economic, social, and political well-being of a country or region. It is often used to describe the efforts of governments, international organizations, and other stakeholders to promote economic growth, reduce poverty, and improve living standards in underdeveloped or developing countries. Development can involve a wide range of activities, such as investing in infrastructure, improving education and healthcare systems, increasing access to credit and financial services, and promoting entrepreneurship and economic diversification.

There are many different approaches to development, and there is ongoing debate about the most effective strategies for promoting development. Some approaches focus on promoting economic growth as the primary means of improving living standards, while others prioritize more equitable distribution of wealth and resources, or the protection of the environment. Ultimately, the goal of development is to improve the quality of life for all members of a society.

Types of Economy – Developed, Developing and Underdeveloped

A developed economy is a country that has a high level of economic development, a high gross domestic product (GDP) per capita, and a high level of industrialization. These countries tend to have a diverse range of industries, a well-developed infrastructure, and a highly educated workforce. Examples of developed economies include the United States, Canada, and countries in Western Europe.

A developing economy is a country that is in the process of industrializing and modernizing its economy. These countries tend to have a lower GDP per capita and a less diverse range of industries than developed economies. They may also have less developed infrastructure and a less educated workforce. Examples of developing economies include China, India, and many countries in Latin America and Africa.

An underdeveloped economy is a country that has a very low level of economic development and a low GDP per capita. These countries tend to have a narrow range of industries, limited infrastructure, and a low level of education. Examples of underdeveloped economies include Afghanistan, Bhutan, Cambodia, Malawi, Madagascar, and Liberia etc.

1. Low GDP per capita: Underdeveloped economies tend to have a low GDP per capita, which is a measure of the total economic output of a country divided by its population. This is an indication of the low level of economic development in these countries.

2. Narrow range of industries: Underdeveloped economies tend to have a narrow range of industries, which means that they rely on a limited number of sectors for economic growth.

3. Limited infrastructure: These economies often have limited infrastructure, such as poorly developed transportation systems, limited access to clean water and sanitation, and inadequate healthcare and education systems.

4. Low level of education: Underdeveloped economies tend to have a low level of education, which means that there is a shortage of skilled and educated workers.

5. High levels of poverty and inequality: Underdeveloped economies often have high levels of poverty and income inequality, as a large proportion of the population lacks access to economic opportunities and basic needs.

6. Dependence on exports: Underdeveloped economies often rely heavily on exports as a source of economic growth, as they lack the domestic market and industrial base to support economic development.

7. Low levels of technological development: Underdeveloped economies tend to have low levels of technological development, which can limit their ability to produce goods and services efficiently.

8. Poor resource allocation: Underdeveloped economies often have inefficient resource allocation, which can lead to the miss-allocation of resources and reduce economic growth.

9. High unemployment: Underdeveloped economies often have high unemployment rates, as there may be a lack of job opportunities and a lack of skilled workers to fill available jobs.

10. Dependence on agriculture: Underdeveloped economies may rely heavily on agriculture as a source of employment and economic growth. However, agriculture is often susceptible (क्षतिग्रस्‍त) to fluctuations in weather and international prices, which can make it a volatile source of income.

11. Limited access to credit: Underdeveloped economies may have limited access to credit, which can make it difficult for businesses to finance investment and expansion.

12. Political instability: Underdeveloped economies may be prone to political instability, as economic hardship can lead to social unrest and conflict. This instability can further hinder economic development.

1. General Poverty and Low Living Standard: Poverty cannot be described; it can only be felt. The most of the developing countries (LDC) are facing the major problem of general as well as absolute poverty and low standard of living. Most of the people in developing nations are ill-fed, ill-housed, ill-clothed and illiterate. In LDCs almost 1/3 population is much poor.

2. Burden of Internal and External Debts: Developing countries (UDC) are loans and grants receiving nations. Most of the developing countries of the world are depending on foreign economic loans. An amount of foreign loans is increasing as the years pass. Their foreign trade and political structure is also dependent on the guidance of foreigners.

3. Low Per Capita Income: Due to low national income and huge population growth rate, per capita income in developing countries is very low.

4. Over Dependence on Agriculture: Most of population is living in more than 50,000 villages. Backward agriculture is the major occupation of the population. Agriculture sector is backward due to old and traditional methods of cultivation, in-efficient farmers, lack of credit facilities; un-organized agriculture market etc.

5. Unemployment: An outstanding problem of developing countries is their high rate of un-employment, under- employment and disguised-unemployment.

6. Low level of Productivity: The productivity level is very low in developing countries as compared to developed countries. Low level of productivity is due to economic backwardness of people, lack of skill, illiteracy and ill-training.

7. Deficit Balance of Payment: Third world countries have to import some finished and capital goods to make economic development, on the other hand they have no products to export but raw material.

8. Dualistic Economy: Dualistic economy refers to the existence of advanced & modern sectors with traditional & backward sectors. Co-existence of modern and traditional methods of production in urban and rural areas, Co existence of wealthy, highly educated class with a large number of illiterate poor classes and Co-existence of very high living standard with very low living standard is one of the key feature of a developing country.

9. Deficiency of Capital: Shortage of capital is another serious problem of poor nations. Lack of capital leads to low per capita income, less saving and short investment.

10. In-appropriate Use of Natural Resources: Mostly there is shortage of natural resources in developing nations and this is also a cause of their economic backwardness. Natural resources are available in various poor countries but they remain un-utilized, under-utilized or mis-utilized due to capital shortage, less efficiency of labour, lack of skill and knowledge, backward state of technology, improper government actions and limited home market.

11. Market Imperfection: Market is imperfect in accordance with market conditions, rules and regulations in the most of developing nations. There exist monopolies, mis-leading information, immobility of factors; hoarding and smuggling etc. that cause the market to remain imperfect.

Economic development refers to the process of improving the economic well-being and quality of life of a society by increasing the production of goods and services and improving the distribution of wealth and income. Economic development typically involves economic growth, which is an increase in the output of goods and services, and can also involve structural changes in the economy, such as shifts from agriculture to manufacturing or from informal to formal sector employment. There are several factors that can contribute to economic development, including:

1. Investment in human capital: Investing in education, healthcare, and other areas that improve the skills and productivity of the workforce can contribute to economic development.

2. Investment in physical capital: Investment in infrastructure, such as roads, ports, and airports, and in machinery and equipment can increase the productive capacity of an economy.

3. Technological innovation: The adoption of new technologies can increase productivity and drive economic development.

4. Economic policies: Government policies that support economic growth, such as favourable tax policies and a stable business environment, can contribute to economic development.

5. Access to markets: Access to markets, both domestic and international, can also be an important factor in economic development, as it allows businesses to sell their products and expand their operations.

Quantitative and Qualitative methods of measuring economic development

Quantitative methods:

1. GDP (gross domestic product): GDP is a measure of the total value of all goods and services produced within an economy in a given year. It is often used as a measure of the size and strength of an economy.

2. GNP (gross national product): GNP is similar to GDP, but it measures the total value of all goods and services produced by a country’s citizens and businesses, regardless of where they are located.

3. Unemployment rate: The unemployment rate is the percentage of the labour force that is currently without work but actively seeking employment. High unemployment rates can indicate economic underdevelopment, while low unemployment rates can indicate economic development.

4. Inflation rate: The inflation rate is the percentage change in the general price level of goods and services over a given period of time. High inflation rates can be a sign of economic instability and can reduce the purchasing power of consumers.

5. Trade balance: The trade balance is the difference between a country’s exports and imports. A positive trade balance, where exports are greater than imports, can indicate economic strength, while a negative trade balance, where imports are greater than exports, can indicate economic weakness.

6. Per capita income: Per capita income is a measure of the average income earned per person in a given country or region. It can be used as an indicator of economic development; as higher per capita incomes are often associated with higher standards of living.

7. Labour force participation rate: The labour force participation rate is the percentage of the working-age population that is either employed or actively seeking employment. A high labour force participation rate can indicate a strong and healthy economy.

8. Industrialization: The level of industrialization within a country can also be a measure of economic development. Industrialization refers to the process of increasing the production of goods through the use of machinery and other technological innovations. Countries that are more industrialized tend to have higher levels of economic development.

Qualitative methods:

1. Education and literacy: The level of education and literacy within a country can be an important indicator of economic development, as a highly educated and literate population is often better equipped to participate in and contribute to economic growth.

2. Infrastructure: The availability of infrastructure, such as roads, bridges, ports, and telecommunications systems, can also be an important factor in economic development, as it enables the flow of goods and services and allows for greater communication and connectivity.

3. Quality of life: The quality of life for citizens, including factors such as access to healthcare, clean water, and stable housing, can also be an important indicator of economic development.

4. Political stability and governance: Political stability and effective governance can be important indicators of economic development, as they can create an environment conducive to economic growth and investment.

5. Social capital: Social capital refers to the networks, norms, and trust within a society that facilitate cooperation and coordination. High levels of social capital can contribute to economic development by enabling the flow of information and resources and by fostering a sense of community and shared purpose.

6. Cultural values: Cultural values and traditions can also play a role in economic development. For example, a culture that values education and hard work may be more likely to support economic growth, while a culture that is more resistant to change may be less conducive to economic development.

7. Environmental sustainability: Economic development that is unsustainable from an environmental perspective may not be truly development at all, as it may ultimately lead to negative consequences for both the economy and society. Consideration of environmental sustainability can be an important aspect of measuring economic development.

1. Definition: Economic growth refers to the increase in the output of goods and services, while economic development refers to the improvement in the economic well-being and quality of life of a society.

2. Focus: Economic growth focuses on the increase in GDP and other measures of economic output, while economic development focuses on broader issues such as poverty reduction, income distribution, and social and economic inequality.

3. Drivers: Economic growth can be driven by factors such as technological innovation and capital investment, while economic development can be influenced by a variety of factors, including investment in human capital, infrastructure, and technological innovation, as well as economic policies and institutions.

4. Time horizon: Economic growth can be achieved in the short term through increases in productivity and efficiency, while economic development takes a longer-term perspective and involves structural changes in the economy.

5. Inclusiveness: Economic growth may not necessarily be inclusive, as it may benefit some groups more than others, while economic development aims to improve the economic well-being of all members of society.

6. Sustainability: Economic growth may not necessarily be sustainable, as it may be based on resource depletion or environmental degradation, while economic development aims to be sustainable and consider the long-term impacts on the environment and society.

7. Quality of life: Economic growth does not necessarily improve the quality of life, as it does not take into account factors such as access to healthcare, education, and other social services, while economic development aims to improve the overall quality of life of the population.

8. Distribution of wealth and income: Economic growth may not necessarily lead to a more equal distribution of wealth and income, while economic development aims to reduce inequality and improve the distribution of income and wealth.

9. Institutions: Economic growth does not necessarily require strong institutions, while economic development often relies on effective and stable institutions to support economic development.

10. Complexity: Economic growth is a relatively simple concept that focuses on the increase in output, while economic development is a more complex concept that takes into account a range of social, economic, and environmental factors.

Human Development Meaning: Human development is a concept that emphasizes the importance of expanding the capabilities and opportunities of individuals to lead lives that they value and have the freedom to choose. It is based on the idea that human well-being is not just about economic growth and material prosperity, but also about the ability to lead a healthy, fulfilling, and meaningful life. The idea behind human development is that people are the ultimate end and purpose of development. Economic growth and development should be focused on improving the capabilities and opportunities of individuals.

There are several elements that are often considered to be important for human development, including:

1. Health: Access to healthcare, clean water, and adequate nutrition are essential for human development, as they allow individuals to lead healthy and productive lives.

2. Education: Education is an important element of human development, as it expands people’s knowledge and skills, and provides them with the opportunity to participate in economic and social life.

3. Standard of living: A decent standard of living, including access to basic needs such as food, shelter, and clothing, is an important aspect of human development.

4. Political and social rights: Political and social rights, such as the right to vote, freedom of expression, and freedom from discrimination, are also important for human development, as they allow individuals to fully participate in society and have a say in decisions that affect their lives.

5. Personal security: Personal security, including protection from violence, abuse, and exploitation, is also an important element of human development.

6. Social and cultural values: Respect for social and cultural values, including diversity, tolerance, and equality, is an important aspect of human development, as it allows individuals to live in harmony with others and contribute to a more inclusive and harmonious society.

Human Development Index (HDI)

The human development index (HDI) is a composite measure of a country’s progress in three areas: health, education, and standard of living. It is used to rank countries based on their level of human development.It is used to rank countries based on their level of human development and to track changes over time.

The HDI is calculated using the following three indicators:

1. Life expectancy at birth: This measures the average number of years that a person is expected to live based on current mortality rates. It is used as an indicator of health and reflects the availability of healthcare, nutrition, and other factors that affect health outcomes.

2. Education: This measures the average number of years of schooling that a person has completed, including primary, secondary, and tertiary education. It is used as an indicator of education and reflects the availability and quality of education in a country.

3. Gross national income (GNI) per capita: This measures the average income per person in a country, adjusted for purchasing power parity (PPP). It is used as an indicator of standard of living and reflects the overall prosperity of a country.

The HDI is calculated using the geometric mean of these three indicators, with each indicator normalized on a scale from 0 to 1. The HDI is then calculated by multiplying the geometric mean of the three normalized indicators by 100. Countries are ranked based on their HDI scores, with higher scores indicating higher levels of human development.

According to the Human Development Report 2021-22 HDI rank of India is 132nd, among 191 countries with an HDI value of 0.633. This indicates that India has made progress in improving human development, but there is still room for improvement.

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