Theories of Development and

Indian Economy
Subject Code: 0303
Asst Prof Akshay Ugale
Modern Law College, Ganeshkhind
Pune-16
 Economic Growth
• Positive change in real output of the economy
in particular span of time
• It is a narrow concept
• Measured by the increase in indicators like
GDP, PCI etc
• A very Short term process
• Applicable to Developed/Developing countries
 Economic Growth
• Quantitative indicators change
• It is an automatic process
• Can be put on a haul or break for sometime
 Economic Development
• Economic Development involves rise in level
of Production in an economy along with the
advancement of technology, improvement in
living standards.
• It is a broad concept
• Improvement in lie expectancy rate, infant
mortality rate, literacy rate and poverty rate.
• It is a long term process
 Economic Development
• Its for the developing nations.
• This is a qualitative indicator.
• This is a desperate, forced and planned
process.
• This is continuous ongoing process
 Features and indicators of Economic
Development
• Improved levels of living
- Rise in national income of the economy.
- Rise in the Per Capita Income of the country
over a long period.
- Sustainable Development
 Features and indicators of Economic
Development
• Non Income Indices
- Physical Quality of Life Index (PQLI)
- Basic Needs Approach from the poverty angle
- Human Development Index (HDI)
 Vicious Circle of Poverty
• Concept given by Nurkse
• ‘A country is poor because it is poor’
• Forces acting continuously to act and react in
such a way to keep a nation in a constant state
of poverty.
• Eg- a poor man --- has less food to eat --- as a
result is underfed --- Poor health ---low
capacity to work --- poor
 Vicious Circle of Poverty
• Solution to the problem
- Rate of capital formation needs to be
increased
- When the capital formation is increased then
the income increases which results in the rise
in savings and ultimately the consumption is
increased.
 Vicious Circle of Poverty
• How can the capital formation be increased?
- Domestic resources i.e. taxing the
ostentatious living of rich.
- By raising the marginal rate of saving.
- Providing higher attractive savings rate to
increase savings rate
- Taking foreign loans
 Features and indicators of Economic
Development
• Definition- in the context of underdeveloped
countries like India, development is defined as
a sustained increase in the real per capita
income together with an improvement in the
distribution of material welfare.
 Features and indicators of Economic
Development
• Improved Levels of living
• Sustainable Development
• Income Index
• Non-Income Index
• Basic needs approach
• Human Development Index
 Human development Index rankings
Rank Nation Index
1 Norway 0.949
2 Australia 0.939
3 Switzerland 0.939
4 Germany 0.926
5 Denmark 0.925
131 India 0.624
 Poverty Line
• Expert Group 1993 Ladkawala committee.
- Poverty line converted to ‘State Poverty Line’
- Calculated on the basis of CPI-Agricultural
labour for rural state specific poverty line
- CPI- Industrial workers for urban state specific
poverty line
 Poverty Line
• Definition- Poverty Line is the level of income to
meet the minimum, living conditions. Poverty
Line is the amount of money needed for a person
to meet his basic needs. It is defined as the
money value of all the goods and services needed
to provide basic welfare of an individual.
• Tendulkar committee (2005)
- Poverty line in form of ‘Rupee per capita per
month’
 Poverty Line
Year Rural Urban
2004-05 444.6 578.8
14/day 19.28/day

2009-10 672.8 859.6

22.42/day 28.65/day

2011-12 816 1000

27.2/day 33.33/day
 Poverty Line
• Rangarajan committee
- Submitted its report in 2014
- Gave ‘per capita monthly expenditure’ as
Rs.972 in rural areas and Rs.1407 in urban
areas as poverty line.
- It preferred to use ‘Monthly expenditure of
household of five’ for the poverty line purpose
which came out to be Rs.4860 in rural and
Rs.7035 in urban areas
 Poverty Line
Rural Urban
2155Kcal 2090Kcal
Calorie
48Kcal 50Kcal
Proteins
26Kcal 28Kcal
Fat
 Poverty Line
• As per the estimates 30.9% of the rural
population and 26.4% of urban population
was below the poverty line in 2011-12. The all
India Ratio was 29.5%
• In rural India, 260.5 million individuals were
BPL and 102.5 million were Below poverty
Line. In total 363 million were BPL.
Overview of theories of development
Theory Economist
Big Push Rosenstein Rodan

Critical Minimum effort Leibenstein

Balanced growth R.Nurkse

Unbalanced growth Hirschman

 Big Push theory
• By Rosenstein Rodan given inn early 1940’s
• A very large amount of investment.
• Based on the assumption of external
economies.
 Big Push theory
• Criticism
- Inelastic Demand issue
- Problem of less developed countries
- Over emphasis on industry/manufacturing
- No solution for inducing further investments
- Ignores the contribution of private sector
 Balanced Growth strategy
• Core idea given by Nurkse
• Simultaneous investment in varied sectors
• E.g. – of a shoe factory
• Major obstacle in underdeveloped nations is
of ‘Vicious Circle of Poverty’
• Low income – Low savings – Low investment –
Low production – Low income – Low demand
 Balanced Growth strategy
• Vicious Circle of Poverty
 Balanced Growth strategy
• How can the vicious circle of poverty be
broken?
- Complementary goods
- Government intervention
- External economies
- Economic Growth
 Unbalanced Growth strategy
• Developed by Hirschman, Singer, Fleming and
others
• Theory postulates that there is needed an
unbalance in the economy rather than a
balance
• Two sectors 1. Social Overhead Capital
2. Directly Productive Activities
 Unbalanced Growth strategy
• Advantages
- More realistic than the balanced growth
approach
- Role of government very important
- The emphasis of the theory on the generation
of favorable climate
- Connection of forward and backward linkages
 Unbalanced Growth strategy
• Criticism
- Resources are not just scarce but are very
scarce
- Neglecting the problem of inflation
- Likely wastages which occur
- Resistances to Resistance
- The optimum degree of imbalance not
explained
 Sustainable Development Goals
• In September 2015, The general assembly of
UN adopted the 2030 agenda for sustainable
development that includes 17 SDG’s.
• 2016 was the first year of implementation of
SDG’s
 Sustainable Development Goals
• No poverty
• Zero Hunger
• Good health and well being
• Quality Education
• Gender equality
• Clean water and sanitation
• Affordable and clean energy
 Sustainable Development Goals
• Decent work and economic growth
• Industry, Innovation and infrastructure
• Reduced inequality
• Sustainable cities and communities
• Responsible consumption and production
• Climate action
• Life below water
 Sustainable Development Goals
• Life on land
• Peace and Justice strong institutions
• Partnerships to achieve the goals
Relation between Population growth
and Per Capita Income
• Per Capita Income(PCI) rises with the
formation of human capital as the skilled
labour increases
• When the birth rate reduces immediately the
PCI of family is increased.
• Rise of the women’s participation in the
labour force
Relation between Population growth
and Per Capita Income
• Whenever the working capital starts becoming
more and more skilled
• Better use of existing resources, addition to its
productive capacity
 Black Money in India
• Black money is a social as well as a big
economic problem
• Adverse psychological effects on the society
• It is basically a tax evaded income earned
through both legal and illegal means
 Black Money in India
Legal means Illegal means

Income earners not revealing Corrupt officers accepting

their full income bribes, smuggling, black
marketing, selling commodities
at prices higher than controlled
prices
Service professionals charging
higher fees and not reflecting it
in their account books
 Black Money in India
• Measures for controlling black money
- Introducing the scheme of special bearer
bonds
- Demonetizing high denomination currency
notes
- Stringent raids
- Scheme of voluntary disclosure
 Black Money in India
• Through all these years these schemes have
just fetched only Rs.5000 crore over a period
of 50 years
• Tax structure to be simplified and modified
• Giving incentives for voluntary disclosure of
income
• Giving more power and authority to Economic
Offenses wing
 Black Money in India
• Finding new and modern ways regularly to curb
corruption
• Right to information should be open in all the sectors
of government except national security
• Bringing under RTI- All the political parties
The judiciary
The PM
CM’s office
● Auditing of all political parties, corporations, political
leaders by external international reputed organisation
 Food Security
• World Development report – ‘Access by all
people at all times to enough food for an
active, healthy life’
• Food and Agricultural organization- “Ensuring
that all people at all times have both physical
and economic access to basic food that they
need”
 Food Security
• Stages of food security in India

Stage Components
Stage 1 Adequate amount of cereals

Stage 2 Cereals, Pulses

Stage 3 Cereals + Pulses + milk + milk

products

Stage 4 Cereals + Pulses + milk + milk

products + vegetables + fruits +
fish + eggs + meat
 History of Food Security
• Since independence we were dependent on
foreign nations for imports
• Two severe droughts in 1965-67
• American P.L.480 Program
• Green revolution undertaken by nation to
attain self sufficiency
 Food Security and PDS
• Main purpose of PDS was to act as a price
support program for the consumers during the
periods of food shortage of 1960’s
• The basic aim was to provide essential
commodities like rice, wheat, sugar, edible oil,
soft coke and kerosene at subsidized prices.
• During 2013 September Parliament passed the
historic National Food Security Act.
Food Security and PDS
Magnitude of PDS in reducing hunger
• More than 5 lakh fair price shops
• More than 3.5 lakh in rural areas
• More than 1 lakh in urban areas
• Food grains supplied through PDS constitute
9-10% of total production in the country
• Cost estimates of implementing the National
Food Security Act, 2013
Magnitude of PDS in reducing hunger

National Food Security Act, 95,000-1,26,000 crore

2013 (NFSA)
Commission for agriculture 2,41,263 crore
Cost and Prices (CACP)
 Poverty estimates
State 1993-94 2004-05 2009-10 2011-12
Andhra 44.6% 29.9% 21.1% 9.2%
Pradesh

Bihar 60.5% 54.4% 53.5% 33.7%

Maharashtra 47.8% 38.1% 24.5% 17.4%

Uttar Pradesh 48.4% 40.9% 37.7% 29.4%

All India 45.3% 37.2% 29.8% 21.9%

 Shortcomings in PDS
• Still less coverage
• Weak infrastructure facility with the biggest
concern of storage facility
• Fair Price Shops falling short of supply
• Poorest states such as UP, Bihar, MP,
Rajasthan, Orissa account a high proportion of
poor but receive only 20% of the central
allocation of food grains.
 Inflation and its Trends in India
• Low prices prevalent only during the first plan
period.
• Prices rising since the second FIVE Year Plan
(FYP)
• Higher during the 1970’s due to the Oil crisis
period.
 Inflation and its Trends in India

Decade Average decadal rate of

Inflation
1950’s 1.7%

1960’s 6.4%

1970’s 9%

1980’s 8%
 Inflation: CPI and WPI
• Consumer Price Index – is a measure that
examines the weighted average price of a
basket of consumer goods and services such
as transportation, food and medical care. It is
calculated by taking price changes for the each
item in the predetermined basket of goods
and services.
- Changes in CPI are used to assess price
changes associated with the cost of living
 Inflation numbers
Years Average CPI
2014 4.35

2015 2.49

2016 4.97

2017 5.88

2018 6.37
 Special Economic Zones
• What is a SEZ
- SEZ are growth engines that can boast
manufacturing, augment exports and generate
employment. The private sector has been
actively associated with the development of
SEZ’s. The SEZ’s require special fiscal and
regulatory regime in order to impart a hassle-
free operational regime encompassing the
state of art infrastructure and support services
 Special Economic Zones; Issues
• Unutilized land
• Multiple models
• Unutilization of existing capacities
• Free Trade Agreement issue
• Imposition of MAT’s
• Lack of support
• Payment requirements
 Make in India
• Launched on 25th September, 2014
• Led by the Department of Industrial Policy and
Promotion (DIPP)
• Aim: to raise the contribution of manufacturing
sector to 25% of GDP by year 2025 from the
current 16%
• Result: since Sept 2014, FDI inflows of USD 77
Billion including equity inflows of USD 56 Billion
have been received between Oct 2014 and March
2016
 Make in India
• Expected to create 100 million new jobs in India
by 2022
• Mobile manufacturing units generated 38,300
new jobs in the last 2 years. The sector’s
contribution to GDP is expected to be around
8.2% by 2020 with a potential to add 8 lakh jobs.
• The economy is set to increase its base to 11,500
tech start ups by 2020 as industry would get a
huge boost from Make In India
 Skill development issue in India
• By 2022 India will have the maximum working
population in the world
• Definition-Skill Development refers to all the
efforts to improve the effectiveness and
contribution of labour to overall productivity
as well as production which leads the
economy to a higher trajectory.
 Skill development issue in India
• Two factors – 1. Demographic dividend
2. Expansion of Knowledge
based economy
11th plan recommended the creation of
comprehensive National Skills Development
Mission.
 Skill development issue in India
3 Tier Institutional structure developed

PM’S National Council on Skill Development

National Skill Development Co-ordination

Board (NSDCB)

National Skill Development Corporation

(NSDC)
 Skill development issue in India
• Student mobilization
• Scalability problems
• Mismatch between youth aspirations and Jobs
• Ensuring minimum wages
 Features of Indian Agriculture
• Feudal Character of production
• Usurious capital and growing indebtedness
• Dualism in labour market
• Outdated farming techniques
• Fluctuations in agricultural output
• Diversities in Indian Agriculture
 Sub-division and Fragmentation of
Land
• There are two major issues in Indian
agriculture
1. Smaller average holdings
2. Fragmented holdings
 Sub-division and Fragmentation of
Land
• Causes of small size of holding in India
- Growing population of the country
- Law of inheritance
- Decline of joint family system
- Decline of handicraft and village industries
- Rural indebtedness and money lenders
 Sub-division and Fragmentation of
Land
• Pattern of land holding in India
Number in millions Area in million hectares

1970-71 1990-91 2010-11 1970-71 1990-91 2010-11

Marginal 36 62 93 15 25 36
holding

Small 24 34 24 49 67 35
holding
Medium 8 8 5 48 45 33
holding

Large 3 2 1 50 29 16(10%)
holding
Total 71 106 138 162 166 159
 Agricultural credit sources
• Institutional sources
- Co-operative societies – PACS
LDB’s
- Commercial banks
- Regional Rural Banks
- Government Loans
 Agricultural credit sources
• Non-Institutional sources
- Mahajan
- Savkar
- Relatives
- Traders
- Commission agents
- Landlords
- Agents
 Issues of agricultural laborers
• Characteristics of these agricultural labours
• Meager earnings
• Unsatisfactory employment
• Low consumption
• Heavy indebtedness
• Socially deprives classes
 Corporatization of Agriculture
• The word corporatization means forming a
body of many individuals.
• The French word ‘corporalis’ relates to human
body.
• Corporatization of agriculture, therefore
indicates formation of a body corporate solely
for agriculture.
 Corporatization of Agriculture
• Features of corporatization of agriculture
1. Commercialization of agriculture
2. Involvement of private investment
3. Organizational framework with the
homogeneity of activities
4. Improved product quality
5. Competitiveness in price
6. Infusion of modern technologies
 Issues of corporatization of farming
• Liberalization of agriculture
• Landlordism
• Farmers at the mercy of corporate houses
• Profitability as priority concern
• Issues of food security
• Farmers will be employees and not entrepreneurs
• Profiteering without social security dragnet
• Lack of transparency
 Small and Medium Scale Enterprises
(SME’s)
Manufacturing sector
Enterprises Investment in plant machinery
Micro Enterprises Doesn’t exceed 25 lakh rupees
Small enterprises More than 25 lakh rupees but not
exceeding 5 crore rupees

Medium Enterprises More than 5 crore rupees but doesn’t

exceed 10 crore rupees
 Small and Medium Scale Enterprises
(SME’s)

Services sector
Enterprises Investment in equipments
Micro enterprises Doesn’t exceed 10 lakh rupees
Small enterprises More than 10 lakh butt doesn’t
exceed 2 crore rupees
Medium enterprises More than 2 crore rupees but
doesn’t exceed 5 crore
 Public Sector Enterprises (PSE’s)
• The term PSU refers to a government company.
• Government company is defined under section
2(45) of the Companies Act, 2013 as any
company in which not less than 51% of the paid
up capital is held by the central government or by
any state government or governments or partly
by the central government and partly by one or
more state governments and includes a company
which is a subsidiary company of such a
government company.
 Multinational Corporation (MNC’s)
• A MNC corporation has facilities and other
assets in at least one country other than its
home country. Such companies have offices
and/or factories in different countries and
usually have a centralized head office where
they co-ordinate global management. Very
large MNC’s have budgets that exceed those
of many small countries. MNC’s are
sometimes referred to as transnational,
international or stateless corporations.
Issues of Industrial Labour and Labour
Legislation
• Multiplicity of Labour Laws and the need for
fewer labor legislations if not a single labour
code
• Law relating to multiple definition of
same/similar terms under labour legislation to
be eliminated
• Law relating to arena of interaction
• Law relating to salary limit-obsolete
Issues of Industrial Labour and Labour
Legislation
• Number of persons employed
• Laws regulating strikes and lockouts
• Notice of change under section 9A of the
Industrial Disputes Act, 1947
• Governments permission for retrenchment,
lay off and closure of enterprise
• Problems of enforcement and compliance of
labour laws
Issues of Industrial Labour and Labour
Legislation
• Recognition of unions
• National minimum wage
 Capital sources
• Internal Self Finance
• Equity, Debentures and Bonds
• Public Deposits
• Loans from banks
• The Managing Agency System
• Indigenous bankers
• Development Finance Institutions