Unit 1 Economics Development

a) Concepts of economic development and growth

ECONOMIC
ECONOMIC GROWTH
DEVELOPMENT
Economic growth is a Economic Development is
positive quantitative change the improvement in
Definition
in a country’s actual output quality of life and standard of
per capita income. living.
Approach Quantitative Qualitative
Better Human Development
Index (HDI),
Human Poverty Index (HPI),
Growth in metrics like GDP, Gender Development Index
Indicators
GNP, FDI, FII, etc. (GDI),
Balance of trade,
Physical Quality of Life Index
(PQLI), etc.
Term Short-term Long-term
Applicability Developed nations Developing nations
No government support or Highly dependent on
Government intervention is required government aid since it
Aid since it is an automatic includes widespread policy
process. changes.
Economic development
Economic growth does not focuses on the equal
Wealth refer to fair and equal distribution of wealth among
Distribution distribution of wealth the people
among the people. and uplifts the less
privileged.
Production of goods and
Focus Distribution of resources.
services.

FACTORS AFFECTING ECONOMIC GROWTH

Natural Resources
  Natural resources are the most important factor influencing an economy's
development.
 Natural resources include land area and soil quality, forest wealth, a
good river system, minerals and oil resources, a favourable climate,
and so on.
 The abundance of natural resources is critical for economic growth. A
country lacking in natural resources may be unable to develop rapidly.
 However, the availability of abundant natural resources is a necessary but
not sufficient condition for economic growth.
 Natural resources are unutilised, underutilised, or misutilized in
developing countries. One of the reasons for their backwardness is this
only.
 Countries such as Japan, Singapore, and others, on the other hand, are
not endowed with abundant natural resources, but they are among the
world's developed nations.
 These countries have demonstrated a commitment to preserving available
resources, putting forth their best efforts to manage resources,
and minimising wastage of resources.

2) Capital Formation

 Capital formation is the process by which a community's savings are

channelled into investments in capital goods such as plant, equipment,
and machinery, which increases a country's productive capacity and
worker efficiency, ensuring a greater flow of goods and services in a
country.
 The process of capital formation implies that a community does not spend
its entire income on goods for current consumption, but rather saves a
portion of it and uses it to produce or acquire capital goods that
significantly increase the nation's productive capacity.

3) Technological Progress

 Technological progress primarily entails research into the use of new

and improved methods of production or the improvement of existing
methods.
 Natural resources are sometimes made available as a result of
technological progress. However, in general, technological progress leads
to increased productivity.
 In other words, technological advancement increases the ability to make
more effective and fruitful use of natural and other resources for
increasing output.
  It is possible to obtain a greater output from a given set of resources by
using improved technology, or a given output can be obtained by using a
smaller set of resources.
 Technological progress improves the ability to make better use of
natural resources, for example, with the aid of power-driven farm
equipment, agricultural production has increased significantly.
 The United States, United Kingdom, France, Japan, and other
advanced industrial nations have all gained industrial strength through the
application of advanced technology.
 Adoption of new production techniques, in fact, facilitates economic
development.

4) Entrepreneurship

 Entrepreneurship entails the ability to identify new investment

opportunities, as well as the willingness to take risks and invest in new
and growing business units.
 The majority of the world's underdeveloped countries are poor not
because of a lack of capital, lack of infrastructure, unskilled labour, or a
lack of natural resources, but because of a severe lack of
entrepreneurship.
 As a result, it is critical in developing countries to foster entrepreneurship
by emphasizing education, new research, and scientific and technological
advancements.

5) Human Resource Development

 A good quality of population is critical in determining the level of

economic growth.
 As a result, investment in human capital in the form of educational,
medical, and other social schemes is highly desirable.
 Human resource development improves people's knowledge, skills, and
capabilities, which increases their productivity.

6) Population Growth

 The increase in labour supply is a result of population growth, which

creates a larger market for goods and services. As a result, more labour
produces more output, which a larger market absorbs.
 Output, income, and employment continue to rise as a result of this
process, and economic growth improves.
 However, population growth should be expected to be normal. A
galloping rise will stifle economic progress.
  Only in a sparsely populated country is population growth desirable. It is,
however, unjustified in a densely populated country like India.

7) Social Overheads

 The provision of social overheads such as schools, colleges, technical

institutions, medical colleges, hospitals, and public health facilities is
another important determinant of economic growth.
 Such facilities help the working population to be healthier, more
efficient, and more responsible.
 Such people have the potential to propel their country's economy forward.

Non-Economic Factors Affecting the Economic Growth

Political Factors

 Political stability and strong administration are critical to modern

economic growth.
 A stable, strong, and efficient government, honest administration,
transparent policies, and their efficient implementation foster investor
confidence and attract domestic and foreign capital, resulting in faster
economic development.

Social and Psychological Factors

 Social factors include social attitudes, social values, and social

institutions, which change as education expands and cultures shift from
one society to the next.
 Modern ideology, values, and attitudes result in new discoveries and
innovations, as well as the rise of new entrepreneurs.
 Outdated social customs limit occupational and geographical mobility,
posing a barrier to economic development.

Education

 It is now widely acknowledged that education is the primary means of

development. Greater progress has been made in countries where
education is widely available.
 Education is important in human resource development because it
increases labour efficiency and removes mental barriers to new ideas and
knowledge, which contributes to economic development.

Desire for Material Betterment

  The desire for material advancement is a necessary prerequisite for
economic development.
 Societies that place focuson self-satisfaction, self-denial, and faith in fate,
limit risk and enterprise, causing the economy to stagnate.

Measures Taken to Ensure Economic Growth

 Economic growth can be achieved when the rate of increase in total

output exceeds the rate of increase in a country's population.
 A country's human resources should be sufficient in number and
equipped with the necessary skills and abilities in order to achieve
economic growth.
 The efficient utilisation or exploitation of natural resources is dependent
on human resource skills and abilities, the technology used, and the
availability of funds.
 A country with a skilled and educated workforce and abundant natural
resources propels its economy forward.
 Capital formation increases the availability of capital per worker, which
raises the capital/labor ratio even further. As a result, labour productivity
rises, leading to an increase in output and economic growth.
 Technological advancement aids in increasing productivity with limited
resources. Countries that have worked in the field of technological
development grow faster than countries that have placed less emphasis on
technological development. The selection of appropriate technology is
also important for an economy's growth.

OBSTACLES TO ECONOMIC DEVELOPMENT

 International obstacles: According to Myrdal ‘of the two countries if one
is industrial other underdeveloped free trade will be such initiate on
cumulative process that render underdeveloped countries and remain
poor and static’:
1. Unbalance structure of production: dualism in the economy arises
due top international trade there will be developed export sector
and domestic production sector remain underdeveloped. Dualism
led to capital intensive technique in export production sector,
disguised unemployment in a country.
2. Demonstration effect: people of underdevlop countries come in
contact with the people of develop countries they learn about the
difference in their own standard of living and that of people of
develop nation. The result is that people of underdevelop
countries buys large quantities of that goods used in develop
countries like television , refrigrator , fashion item etc. it is called
demonstration effect. Demonstration effect means increase in
propensity to consume due to imitation of better and higher
standard of living.
C lead to Saving lead to capital formation
3. Secular detoriation of terms of trade: the import and export of a
country is called terms of trade. When underdevelop countries
 produce agriculture and raw material and industrialized develop
contries terms of trade are favourable to latter. It is because
demand for agriculture goods are inelastic whereas demand for
industrial goods are elastic.

How To Improve Growth and Development In India

Improving growth and development in India requires a multi-faceted
approach, involving a range of stakeholders, including the government, civil
society, private sector, and international development partners. Some steps
that can be taken to improve growth and development in India are:
1. Promote inclusive growth: This involves policies and programs
aimed at reducing poverty and inequality, increasing access to
basic services, and improving the well-being of vulnerable
populations. This includes initiatives to improve access to
education, healthcare, and social protection programs.
2. Infrastructure development: Investment in infrastructure,
including transportation networks, power supply, and water and
sanitation facilities, can boost economic growth and promote
social development, particularly in rural areas.
3. Encourage entrepreneurship: Policies and programs that
promote entrepreneurship and innovation can help to create
jobs, promote economic growth, and reduce poverty.
 4. Improve governance: Strengthening governance and
accountability mechanisms can help to reduce corruption,
promote transparency and accountability, and create an
enabling environment for economic growth and development.
5. Promote sustainable development: This involves adopting
policies and practices that balance economic growth with
environmental sustainability. This includes promoting renewable
energy, reducing carbon emissions, and improving resource
management.
6. Strengthen the financial sector: Policies and programs aimed at
improving access to finance, particularly for small and medium-
sized enterprises (SMEs), can help to promote entrepreneurship
and innovation, and contribute to economic growth.
7. Invest in human capital: This includes investments in education,
healthcare, and skills training, which can help to improve labor
productivity, promote economic growth, and reduce poverty.
Overall, improving growth and development in India requires a sustained
focus on promoting inclusive growth, strengthening governance and
accountability mechanisms, and investing in infrastructure, human capital,
and sustainable development.

Some schemes launched by government to promote economic growth and

development
8. Make in India: Launched in 2014, Make in India is a program
aimed at promoting manufacturing and attracting foreign
investment to India. The program seeks to make India a global
manufacturing hub and create jobs.
9. Startup India: Launched in 2016, Startup India is a program
aimed at promoting entrepreneurship and innovation in the
country. The program provides support to startups through
funding, mentorship, and other resources.
10. Pradhan Mantri Jan Dhan Yojana (PMJDY): Launched in 2014,
PMJDY is a financial inclusion program aimed at providing access
to banking services for low-income households. The program
aims to promote financial inclusion and reduce poverty.
11. Ayushman Bharat: Launched in 2018, Ayushman Bharat is a
healthcare program aimed at providing access to healthcare
services to the most vulnerable sections of the population. The
 program provides cashless health insurance cover to eligible
beneficiaries.
12. Digital India: Launched in 2015, Digital India is a program
aimed at promoting digital infrastructure and digital services in
the country. The program seeks to improve digital connectivity,
increase access to digital services, and promote digital literacy.
13. Skill India: Launched in 2015, Skill India is a program aimed at
promoting skill development and vocational training in the
country. The program seeks to improve the employability of the
workforce and promote entrepreneurship.
14. Swachh Bharat Abhiyan: Launched in 2014, Swachh Bharat
Abhiyan is a program aimed at promoting cleanliness, sanitation,
and hygiene in the country. The program seeks to improve the
health and well-being of the population and promote
sustainable development.
INEQUALITY OF INCOME:

 It refer to situation of an economy in which income of a small section of

country is much larger than the average income of that nation abd the
income of a large section is smaller than average national income.
 Income inequality refers to how unevenly distributed income is
throughout a society.
 In India, committee was appointed by the government under the
chairmanship of Prof. P.C Mahalanobis publish the report in 1964.

Causes of Income Inequality

There are typically a few things most often accepted as being causes of income
inequality:

 Labor outsourcing - Companies in India and China pay their workers a

lot less money than American companies pay theirs. Since American
companies are typically wanting to make as much of a profit as possible,
a lot of them outsource jobs overseas so that they can get production done
for a far cheaper price. Whereas factory jobs may have paid well before,
now that these jobs can be outsourced for cheaper, they either will be
outsourced or the workers who are working in the factories will not be
well-paid.
 Technological advances - While technological advances seem like a
positive addition to the workplace, they can actually be detrimental to the
 workers. For example, self-checkout lanes are replacing actual cashiers.
These cashiers now either have to get a different position within the
company or they're let go because their services are no longer needed.
 Education - Americans with college educations make 84 percent more
than people with just a high school diploma during their lifetime.1

 Inflation – Inflation is another source of inequality. During an

inflationary period, few profit earners benefit while the majority
of wage earners suffer. This is precisely what has occurred in
developing countries. Profits have soared while salaries have
lagged behind prices. This has resulted in increasing inequality.
Moreover, while money income rises during inflation, real
income declines. As a result, the poor's standard of living
diminishes since their purchasing power falls.

Workers in the organized sector receive greater earnings

during inflation, which helps to offset the effect of price
increases. Nonetheless, earnings and salaries in unorganized
sectors (such as agriculture and small-scale and cottage
enterprises) remain stagnant. As a result, their actual income
(buying income) diminishes.
This is how income distribution disparity grows between the
two major segments of the economy - organized and
unorganized.

 Tax evasion

Personal income tax rates in India are quite high. Tax evasion
and avoidance are encouraged by high tax rates, leading to the
formation of a parallel economy.
This is precisely what occurred in India throughout the plan
period. The unofficial economy is as powerful as (if not stronger
than) the formal economy in this country.
Income and wealth distribution imbalances are caused by high
tax rates. This is because of a disproportionate concentration
of revenue in a few hands as a result of rampant tax evasion.

 New Agrarian Strategy

 India's new agricultural approach was responsible for the
Green Revolution and increased agricultural production. Yet,
the benefits of increased production were mostly enjoyed by
wealthy farmers and landowners.
Meanwhile, the economic situations of landless laborers and
marginal farmers have deteriorated over time. Most farmers in
India are unable to reap the benefits of increased agricultural
productivity. As a result, income distribution disparity in rural
regions has worsened.

Education

The varying capacity of individuals to obtain an education is a

key aspect in the establishment of inequality.
Education, particularly education in a field with a strong
demand for employees, results in high earnings for people with
this degree.
Those who cannot afford an education, on the other hand,
often earn a substantially lower income.
It is believed that a rise in the need for highly trained personnel
in high-tech companies is a key explanation for the world's
growing levels of inequality since the 1980s.

Measures of income inequality

Lorenz Curve
 The Lorenz curve is a way of showing the distribution of income (or

wealth) within an economy. It was developed by Max O. Lorenz in 1905

for representing wealth distribution.
 The Lorenz curve shows the cumulative share of income from

different sections of the population.

 The further away from the bisector the curve is, the greater the

inequality.
 If there was perfect equality – if everyone had the same salary – the
poorest 20% of the population would gain 20% of the total income. The
poorest 60% of the population would get 60% of the income.
 The Lorenz Curve can be used to calculate the Gini coefficient – another
measure of inequality.

 In this Lorenz curve, the poorest 20% of households have 5% of the

nation’s total income.
 The poorest 90% of the population holds 55% of the total income. That
means the richest 10% of income earners gain 45% of total income.
 In this example, there has been a reduction in inequality – the Lorenz
curve has moved closer to the line of equality.
 The poorest 20% of the population now gain 9% of total income
 The richest 10% of the population used to gain 45% of total income but
now only get 25% of total income.

 Gini Coefficient

o The Gini coefficient is a statistical measure of inequality that

reflects how equally or unequally distributed income or wealth
is among a country's population.
o Corrado Gini, an Italian statistician, invented it in 1912.
o The coefficient runs from 0 (or 0%) to 1 (or 100%)
o 0 indicating perfect equality
o 1 indicating complete inequality
o Values greater than one are theoretically possible owing to a
lack of income or riches.
o The Gini coefficient is precisely the ratio of the area of the
triangle below the 45° line to the area of the Lorenz curve.
o The Lorenz Curve may be used to compute the Gini coefficient,
which is another measure of inequality.

 Kuznets Ratio


o Simon Kuznets pioneered the use of these ratios in his
research of income disparities in industrialized and
emerging nations.
o These ratios relate to the percentage of income
possessed by the ratio of the richest x% to the poorest y
%, where x and y represent integers such as 10, 20, or 40.
For example, the lowest 20 or 40% of the population, or
the richest 10%.
o The ratios are effective "parts" of the Lorenz curve and,
like the range, serve as a handy shorthand.
 o The Kuznets Curve is used to show the concept that
economic expansion first increases inequality, followed by
a decrease in disparity.
o The curve is inverted U-shaped.
o Because economic growth is generated by the
development of better products, it typically raises the
income of employees and investors who participate in the
first wave of innovation.
 Palma Ratio

 The Palma index is calculated by adding the income received by

households in the top decile (the top 10%) to the income
earned by the 40% of most disadvantaged households.
 This indicator is based on the idea that economic processes at
the extreme ends of the resource distribution are mostly
responsible for inequality (earned income, accumulated
savings).
 Unlike, the Gini coefficient, the index does not include the
middle class in its calculations.
 The ratio thus measures inequality between the extremes of
the distribution at the top and bottom

Palma ratio = income of richest 10% / income of poorest of 10%

 Hoover Index

o Hoover index is a measure of inequality in income.

o It is also known as the Ricci-Schutz coefficient or the Pietra
index or the Robin Hood index.
o It is the simple measure of income inequality which shows the
proportion of all income that would have to be redistributed in
order to achieve equality.
o Hoover index ranges from 0 to 1 where 0 indicates perfect
equality ie., egalitarian distribution and 1 indicates perfect
inequality ie., more redistribution is needed to achieve income
 equality.

The Hoover index can be graphically represented as the maximum vertical

distance between the 45° line and the Lorenz curve.
PHYSICAL QUALITY OF LIFE INDEX

The Physical Quality of Life Index (PQLI) is a measure that combines three basic
indicators of human well-being – literacy rate, life expectancy, and infant
mortality rate – into a single index. It was developed as an alternative to the
Gross Domestic Product (GDP) as a measure of a country’s progress and
development.

The PQLI seeks to capture the level of basic human development in a society
and compares the well-being of people across different countries and regions.

The Physical Quality of Life Index (PQLI) is an index developed by sociologist

Morris David Morris that measures the quality of life in a country or region
based on three basic components:

Components of PQLI Indicator

Life expectancy The number of years a new-born can
 expect to live, on average
Infant mortality rate The number of infants who die
before reaching the age of one, per
1,000 live births

Literacy rate The percentage of people aged 15

and above who can read and write.

These three indicators are combined to create the Physical Quality of Life Index
(PQLI), which provides a comprehensive measure of basic human well-being in
a society. The PQLI ranges from 0 to 100, with higher scores indicating better
quality of life.

The PQLI is equal to the arithmetic mean of above three indices.

The PQLI is often used as an alternative to GDP as a measure of development,

as it captures aspects of human well-being that are not captured by economic
measures alone.

Advantages

 The advantages of PQLI are that it aids in comprehending the economy’s

overall wellbeing and the effectiveness with which its welfare measures are
executed. This assists the government in implementing remedial measures.
 The technique used to calculate the Physical Quality of Life Index is universally
accepted. As a result, it may be used to compare nations, which enables
comparatively impoverished countries to take remedial action, which is one of
the advantages of PQLI.
 The three metrics, namely life expectancy, infant mortality, and literacy, all
accurately reflect the country’s population wellbeing. A nation that scores well
on all three parameters is considered to have a successful economy. It is
another advantage of PQLI.
 The Physical Quality of Life Index evaluates the country’s sharing of income. A
nation cannot have a high life expectancy, a long life expectancy, or a low new-
born mortality rate unless a significant proportion of its inhabitants gain from
economic progress.

Limitations
While the Physical Quality of Life Index (PQLI) provides a comprehensive
measure of basic human well-being, it has several limitations, which include:

 Limited Scope
The PQLI only captures three basic indicators of well-being – life
expectancy, infant mortality rate, and literacy rate – and does not include
other important aspects such as access to healthcare, education quality,
income, and standard of living.

 Lack of Cultural Sensitivity

The PQLI is a one-size-fits-all approach that does not take into account
cultural differences and variations in lifestyle and social norms that can
affect the well-being of people in different societies.

 Inadequate Data
The PQLI relies on data that may not be accurate or up-to-date,
particularly in low-income countries where data collection systems may
be weak.

 Lack of Weightage
The PQLI treats all three indicators as equally important and does not
provide any weightage to indicate which of the three is more critical for
well-being in a particular society.
  Biases
The PQLI is based on the assumption that higher literacy rates, longer life
expectancies, and lower infant mortality rates are always indicative of a
better quality of life, which may not always be true.

Overall, while the PQLI can provide a useful snapshot of basic human well-
being, it should be used with caution, and in conjunction with other measures
of development and well-being.

Human Development Index (HDI)

 The Human Development Index (HDI) measures the level and changes in
quality of life by combining indicators of life expectancy, education or
access to knowledge, and income or standard of living.
 This measure was introduced by two renowned economists from
Pakistan and India, Mahbub-ul -Haq and Amartya Sen respectively.
 HDI was created as a complement to the gross domestic
product because it emphasizes the importance of human development
in the growth process.
 The higher the country’s HDI score, the higher the people’s lifespan, the
education level, and the gross national income GNI (PPP) per capita and
vice versa.

Dimensions
Long and Healthy Life

 Life expectancy at birth is used to calculate the dimension of a long and

healthy life.
  The life expectancy at birth is a statistical measure of how long an
average person is expected to live based on demographic factors such as
birth year and current age.

Education

 The HDI's second dimension is education. The expected years of

schooling and the mean years of schooling are the education indicators.
 According to the United Nations, the average maximum number of years
of schooling is 18 years, while the mean maximum number of years of
schooling is 15 years.

Standard of Living

 The gross national income (GNI) per capita is commonly used to assess
the standard of living.
 The GNP measures the total domestic and foreign output generated by a
country's residents.

Importance

 Comprehensive Measurement: The HDI takes into account multiple

dimensions of development, including life expectancy, education, and
per capita income. This provides a more holistic understanding of a
country's development than purely economic indicators like GDP.
 Human-Centric Approach: By focusing on life expectancy and education
alongside income, the HDI emphasizes the well-being and capabilities of
people. It reflects the fact that development is ultimately about
improving the lives of individuals.
 Global Comparisons: The HDI allows for easy comparisons between
countries, enabling policymakers and researchers to assess where a
country stands in terms of human development relative to others. This
helps identify best practices and areas for improvement.
 Policy Guidance: Governments and organizations can use the HDI to
identify areas that need attention and allocate resources to improve
overall human well-being. It guides policy decisions by highlighting gaps
in education, healthcare, and income.
 Accountability: The HDI holds governments accountable for the well-
being of their citizens. It provides a basis for international discussions on
development goals and progress.
Criticisms of Human Development Index

 Simplification: The HDI combines diverse indicators into a single index,

potentially oversimplifying complex realities and interactions among
dimensions of development.
 Limited Indicators: While the HDI captures important aspects of
development, it does not consider factors like inequality, environmental
sustainability, and political freedoms, which are also crucial for overall
well-being.
 Weights and Aggregation: The method used to combine different
indicators and assign weights can be debated. Some argue that the
weights assigned to each dimension may not accurately reflect their
relative importance.
 Data Quality: HDI calculations depend on the availability and accuracy of
data, which may vary across countries and regions. Inaccurate or
outdated data can distort the assessment of human development.
 Urban-Rural Disparities: The HDI can mask disparities between urban
and rural areas within a country. National averages may not reflect the
different challenges faced by different segments of the population.
 Subjective Factors: The HDI's indicators are objective, but the index does
not consider people's subjective well-being, personal satisfaction, or
happiness.
 Development vs. Sustainability: The HDI does not account for the
environmental impact of development or a country's sustainable
practices.

India’s HDI POSITION

 India appears to have done a fantastic job of multiplying its GDP many
times over, but development on the HDI front has been disappointing.
 India's HDI score has risen at an annual average rate of 1.42 percent over
the last three decades, according to HDI data.
 As a result, if India is to achieve its goal of becoming a superpower, it
must invest to alleviate the weight of social and economic disadvantage
on the poor.

o India’s rank on the Human Development Index has slipped from 130
in 2020 to 132 in 2021, in line with a global fall in HDI scores in the
wake of the Covid-19 pandemic.
o India’s HDI value:
  India’s HDI value stood at 0.633 during 2021, which was
lower than the world average of 0.732.

In 2020, too, India recorded a decline in its HDI

value (0.642) in comparison to the pre-Covid level
of 2019 (0.645).
o Indicator-specific values:
 2021:
 India’s life expectancy at birth was recorded at 67.2
years;
 Expected years of schooling at 11.9 years;
 Mean years of schooling at 6.7 years; and
 Gross national income per capita (2017 PPP) at
$6,590.
 2022:
 On all these four parameters, India was behind the
world averages in 2021:
 Life expectancy at 71.4 years,
 Expected years of schooling at 12.8 years,
 Mean years of schooling at 8.6 years and
 Gross national income per capita (2017 PPP$) at
$16,752.

 Parameters where India showed improvement:

a. Inequality:
i. Compared to 2019, the impact of inequality on human
development is lower.
ii. India is bridging the human development gap between men
and women faster than the world.
iii. This development has come at a smaller cost to the
environment.
b. Health and education:
 i. The intergovernmental organisation lauded India’s
investment in health and education, helping it come closer
to the global human development average since 1990.
c. Clean water, sanitation and affordable clean energy:
i. The country is improving access to clean water, sanitation
and affordable clean energy.

MULTI-DIMENSIONAL POVERTY INDEX (MDPI)

MDPI is by the United Nations Development Programme (UNDP) and

the Oxford Poverty and Human Development Initiative (OPHI).

The MPI measures “interlinked deprivations in health, education and standard

of living that directly affect a person’s life and well-being”.
  By constructing a deprivation profile for each household
and person across 10 indicators spanning health,
education and standard of living.
 A person is multidimensionally poor if s/he is deprived in
one-third/33% or more of the weighted indicators out of
the 10 indicators.
 Those who are deprived of one-half or more of the
weighted indicators are considered living in extreme
multidimensional poverty.

Highlights
1. Globally, 1.1 billion people (18% of the total population) out of 6.1
billion people, are acutely multidimensionally poor and live in acute
multidimensional poverty across 110 countries.
2. Sub-Saharan Africa has 534 million poor and South Asia has 389
million.
a. These two regions are home to approximately five out of
every six poor people.
3. Children under 18 years old account for half of MPI-poor people (566
million).
4. The poverty rate among children is 27.7%, while among adults it is
13.4 %.
Outlook for India
1. Poverty in India: India still has more than 230 million people who are
poor.
2. The UNDP defines, “Vulnerability — the share of people who are not
poor but have deprivations in 20 - 33.3% of all weighted indicators
— can be much higher.
3. India has some 18.7% population under this category.
4. India’s Progress in Poverty Reduction: India is among 25 countries,
including Cambodia, China, Congo, Honduras, Indonesia, Morocco,
Serbia, and Vietnam, that successfully halved their global MPI values
within 15 years.
5. Some 415 million Indians escaped poverty between 2005-06 and
2019-21.
6. The incidence of poverty in India declined significantly, from 55.1%
in 2005/2006 to 16.4% in 2019/2021.
7. In 2005/2006, approximately 645 million people in India experienced
multidimensional poverty, a number that decreased to about 370
million in 2015/2016 and further to 230 million in 2019/2021.
8. Improvement in Deprivation Indicators: India progressed significantly
in all the three deprivation indicators: Health, Education, Standard of
living.
9. Decline in poverty has been equal as well, cutting across regions
and socio-economic groups.
10.The poorest states and groups, including children and people in
disadvantaged caste groups, had the fastest absolute progress.
11.The percentage of people who were multidimensionally poor and
deprived of nutrition decreased from 44.3% in 2005/2006 to 11.8%
in 2019/2021, and child mortality fell from 4.5% to 1.5%.
Recommendations

 There is a need for context-specific multidimensional poverty indices that

reflect national definitions of poverty.
 While the global MPI provides a standardized methodology, national
definitions offer a comprehensive understanding of poverty specific to
each country.
 It is crucial to consider these context-specific indices to evaluate and
address poverty effectively.

National Multidimensional Poverty Index

 The MPI seeks to measures poverty across its multiple dimensions and in
effect complements existing poverty statistics based on per capita
consumption expenditure.
 It has three equally weighted dimensions – Health, Education, and
Standard of living.
o These three dimensions are represented by 12 indicators such as
nutrition, child and adolescent mortality, maternal health, years of
schooling, school attendance, cooking fuel, sanitation, drinking water,
electricity, housing, assets, and bank accounts.
 NITI AAYOG has released the National Multinational Poverty Index, A
Progress Review 2023”, claiming that a significant number of people
have come out of multidimensional poverty in India.

Key Highlights of the Report

 Reduction in Multidimensional Poverty:

o Between 2015-16 and 2019-21, India witnessed a significant decline
in the number of multidimensionally poor individuals.
o Around 13.5 crore people moved out of multidimensional poverty
during this period.
 Decline in Poverty Percentage:
o India's population living in multidimensional poverty decreased
from 24.85% in 2015-16 to 14.96% in 2019-21, reflecting a decline of
9.89 % points.
 Rural-Urban Divide:
 o The rural areas of India experienced the fastest decline in poverty,
with the poverty rate dropping from 32.59% to 19.28% between
2015-16 and 2019-21.
o In urban areas, the poverty rate reduced from 8.65% to 5.27% during
the same period.
 State-Level Progress:
o In terms of number of MPI poor, Uttar Pradesh saw the largest
decline in the number of poor individuals, with 3.43 crore (34.3
million) people escaping multidimensional poverty.
o The states of Bihar, Madhya Pradesh, Odisha, and Rajasthan also
witnessed significant progress in reducing multidimensional poverty.
o Bihar saw the fastest reduction in MPI value in absolute terms with
the proportion of multidimensional poor reducing from 51.89% to
33.76% in 2019-21 followed by Madhya Pradesh and Uttar Pradesh.

INDEX OF SUSTAINABLE ECONOMIC WELFARE (ISEW)

 ISEW is a financial indicator modifies GDP by taking into account

social and environmental elements that are not taken into account
in the conventional GDP measure.
 While calculating the ISEW, one of the adjustments made to GDP is
to take the costs of environmental deterioration out such as adding
non-market goods and services (volunteer work) and deducting the
costs of income inequality and crime.
  By constructing a deprivation profile for each household
and person across 10 indicators spanning health, education
and standard of living.
 A person is multidimensionally poor if s/he is deprived in
one-third/33% or more of the weighted indicators out of
the 10 indicators.
 Those who are deprived of one-half or more of the
weighted indicators are considered living in extreme
multidimensional poverty.

The Index of Sustainable Economic Welfare (ISEW) is roughly defined by the

following formula:

ISEW = personal consumption

+ public non-defensive expenditures
- private defensive expenditures
+ capital formation
+ services from domestic labour
- costs of environmental degradation
- depreciation of natural capital

GREEN INDEX

The Green Index has been developed by the World Bank's environmentally and
socially sustainable development division. The Green Index is a measure of a
country's environmental sustainability, taking into account factors such as air
quality, water availability, and greenhouse gas emissions. The index is used to
help policymakers identify areas where environmental improvements can be
made and to track progress over time.
 This index measures a nation’s wealth by using a new system.

The new system attaches a dollar value to each of the three components:

i) produced assets

ii) natural resources and

iii) human resources.

It puts a price tag on produced assets, the sum of all machinery, factories,
roads and other infrastructure. It assigns an economic value to land, water,
timber, minerals and all other natural resources. It looks at the human
resources available, the education level, and the range of skills.

It then calculates the true estimate of a country’s wealth, taking into account
all such resources which do not always show up on traditional economic
indicators.

On ‘Green Index’, India with a per capital wealth of $4,300 is ranked 20th from
the bottom among a group of 192 countries, while Australia at $83,500 tops
the list and Ethiopia at $1,400 appears at the bottom.

The Index is a practical instrument to assess the environmental performance of

MFIs.

It aims to:

 Foster the reflection of environmental responsibility.

 Promote the integration of green indicators in Microfinance.
 Have a pedagogical approach by disclosing the main environmental
strategies that can be adopted and implemented by an MFI.

GROSS NATIONAL HAPPINESS INDEX

 Gross National Happiness (GNH), sometimes called Gross Domestic Happiness

(GDH), is a philosophy that guides the government of Bhutan.
 The phrase ‘gross national happiness’ was first coined by the 4th King of
Bhutan, King Jigme Singye Wangchuck, in 1972 when he declared, “Gross
National Happiness is more important than Gross Domestic Product.”
 The concept implies that sustainable development should take a holistic
approach towards notions of progress and give equal importance to non-
economic aspects of wellbeing.
 It includes an index which is used to measure the collective happiness and well-
being of a population.
 The GNH Index includes both traditional areas of socio-economic concern such
as living standards, health and education and less traditional aspects of culture
and psychological wellbeing.
 It is a holistic reflection of the general wellbeing of the Bhutanese population
rather than a subjective psychological ranking of ‘happiness’ alone.
 The GNH Index includes nine domains
o Psychological wellbeing
o Health
o Education
o Time use
o Cultural diversity and resilience
o Good governance
o Community vitality
o Ecological diversity and resilience
o Living standards
 Bhutan and the UN Resolution on Happiness and Development

 In 2011, the UN unanimously adopted a General Assembly resolution,

introduced by Bhutan with support from 68 member states, calling for a
“holistic approach to development” aimed at promoting sustainable happiness
and wellbeing.
 The Gross National Happiness Index is a single number index developed from
the 33 indicators categorised under nine domains. The Centre for Bhutan
Studies constructed the GNH Index using robust multidimensional
methodology known as Alkire-Foster method.
 The concept of GNH has often been explained by its four pillars;
o good governance,
o sustainable socio-economic development,
o cultural preservation, and
o environmental conservation.
 The four pillars have been further classified into nine domains in order to
create widespread understanding of GNH and to reflect the holistic range of
GNH values.
World Happiness Report 2021

 The World Happiness Report 2021 has been released by the UN Sustainable
Development Solutions Network.
 Finland was once again crowned as the world’s happiest country, for the fourth
consecutive year.
o The Nordic nation is followed by Iceland, Denmark, Switzerland, The
Netherlands, Sweden, Germany and Norway.
 India has been ranked 139 out of 149 countries in the list of UN World
Happiness Report 2021.
o In 2019, India was ranked 140th.
 The World Happiness Report is a landmark survey of the state of global
happiness that ranks 149 countries by how happy their citizens perceive
themselves to be.
 The annual report ranks nations based on gross domestic product per person,
healthy life expectancy and the opinions of residents.
 Pakistan is on 105th, Bangladesh on 101st and China on 84th, according to the
report.
 People in war-torn Afghanistan are the most unhappy with their lives, followed
by Zimbabwe (148), Rwanda (147), Botswana (146) and Lesotho (145).
HAPPY PLANET INDEX
 The Happy Planet Index (HPI) is an index of human well-being and
environmental impact.
 It was introduced by the New Economic Foundation in 2006.
 Each country's HPI value is a function of its average subjective life
satisfaction, life expectancy at birth, and ecological footprint per capita.
 it approximates multiplying life satisfaction and life expectancy and
dividing that by the ecological footprint. The index is weighted to give
progressively higher scores to nations with lower ecological footprints.
 The index is designed to challenge well-established indices of countries’
development, such as the (GDP) and the (HDI), which are seen as not
taking sustainability into account. In particular, GDP is seen as
inappropriate, as the usual ultimate aim of most people is not to be rich,
but to be happy and healthy.
 The HPI is based on general utilitarian principles – that most people want
to live long and fulfilling lives, and the country which is doing the best is
the one that allows its citizens to do so, whilst avoiding infringing on the
opportunity of future people and people in other countries to do the
same.
 As such, the HPI is not a measure of which are the happiest countries in
the world. Countries with relatively high levels of Life satisfaction as
measured in surveys, are found from the very top (Colombia in 3rd
place) to the very bottom (the US in 108th place) of the rank order. The
HPI is best conceived as a measure of the environmental efficiency of
supporting well-being in a given country. Such efficiency could emerge in
a country with a medium environmental impact (e.g. Costa Rica) and
very high well-being, but it could also emerge in a country with only
mediocre well-being, but very minimal environmental impact
(e.g. Vietnam).

LIMITATIONS

 ‘happiness’ or ‘life satisfaction’ are very subjective and personal: cultural

influences and complex impact of policies on happiness.
 confusion of name: index is not a measure of happiness but rather a
measure of environmental efficiency of supporting well-being in a given
country.
DIFFERENT INDICES OF MEASURING ECONOMIC DEVELOPMENT

Brief Outline:

The world is often divided into two broad categories of countries:

1. the More Developed Countries (MDCs), and

2. the Less Developed Countries (LDCs)

Such a broad regionalization scheme is likely to be overly simplistic, yet it

commonly used and it can be quite useful. Often different terms are used to
describe each region. Think of other terms that you have heard to describe the
MDCs and the LDCs.

One set of terms that is being used less and less is: First World Countries and
Third World Countries - Why? what is the Second World? How can you have a
first and a third without a second? The Second World used to be the command
economy (communist) countries of the Soviet Union, Eastern Europe, China,
North Korea, Cuba, Vietnam, and a few other countries. With the collapse of
communism in most of these countries the "Second World" no longer exists.

What criteria is commonly used to divide the world into the MDCs and the
LDCs?

There are great disparities among countries based on consumption, access to

quality education and healthcare, social security to people, livelihood
opportunities etc. These disparities led to distinction between MDCs and LDCs.

list of the most commonly used measures of economic development:

1. GNP per capita

2. Population Growth
3. Occupational Structure of the Labour Force
4. Urbanization
5. Consumption per capita
6. Infrastructure
7. Social Conditions
 o literacy rate
o life expectancy
o health care
o caloric intake
o infant mortality

GNP per capita

GNP is the total market value of all final goods and services produced by a
country in one year. It is a measure of economic activity, or how much is
produced in a country. The more that a country produces per person , the
more "developed" it is assumed to be.

Which country produces more (has a higher GNP), India or Switzerland? Which
is more "developed"?

India produces more than does Switzerland, but everybody would agree that
Switzerland is more economically advanced. Why?

The answer is population. the population of India is much more than of

Switzerland. Therefore we must compare GNP PER CAPITA. To calculate GNP
per capita (or income per person) we divide the GNP by the population. The
GNP per capita of Switzerland is $93,446 and the GNP per capita of India is $
2450.

Remember, always use GNP PER CAPITA when comparing the economic
conditions of different countries..

Population Growth

In general, poorer countries have more rapid rates of population growth.

Even though population growth rates seem small (1%, 2% 3%, or maybe 4%)
they have a big impact. a useful way to see this is by using the "Rule of 70".

The rule of 70 is a way to ESTIMATE the number of years it takes for something
to DOUBLE if you know the annual percentage growth rate. Therefore, the
population of the United States with an annual population growth rate of 1%
will double in about 70 years.

IF THE POPULATION GROWTH RATE REMAINS AT 1%. The population of the

country of Mozambique, Southern Africa, with an annual population growth
rate of 4% will double in 17.5 years, quadruple in 35 years and increase by a
factor of 8 in 70 years IF THE POPULATION GROWTH RATE REMAINS AT 4%. So
a small change in the population growth rate results in significant increase in
population.

Occupational Structure of the Labour Force

Economic geographers divide economic activities into primary activities,

secondary activities, and tertiary activities. (Some add quaternary activities and
quinary activities, but we will not.)

PRIMARY ACTIVITIES are those that directly remove resources from the earth.
Generally they include AGRICULTURE, MINING, fishing, and lumbering.

SECONDARY ACTIVITIES involve converting resources into finished products.

These are the MANUFACTURING activities.

TERTIARY ACTIVITIES comprise the SERVICE sector of the economy. The tertiary
activities include retailing, transportation, education, banking, etc.

As countries develop the occupational structure of the labour force changes. In

LDCs most people are engaged in primary activities. In high income countries
like the United states most people are involved with the tertiary sector.

Urbanization

Urbanization is the percentage of a country's population who live in urban

areas. Urban areas generally means in towns and cities of 2,500 or more
people. Generally as countries develop urbanization increases.

Consumption per Capita

Consumption per person is a good indicator of development. The richer a

country is, the more its citizens consume. For example- "televisions per capita"
and "cars per capita".

One consequence of consumption is pollution. Carbon dioxide (CO2) is emitted

when fossil fuels are used. Scientists are studying the connection between CO2
build up in the atmosphere ant global warming. this chart shows CO2
emissions for various countries

Infrastructure

A country's infrastructure is defined as "the foundations of a society: urban

centers, transport networks, communications, energy distribution systems,
farms, factories, mines, and such facilities as schools, hospitals, postal services,
and police and armed forces."

Social Conditions

There are many other measures of economic development. Many refer to the
social conditions of a country. Here is a short list.

 literacy rate
 life expectancy
 health care
 caloric intake
 infant mortality
 other