Module I

Issues in Economic Development

Economic Growth
Growth is defined as the process whereby real per capita income of a country
increases over a long period of time.

Three main features stand out in this definition:

1. Focus is on the rise in per capita income, i.e. income corrected for population
changes
2. Rise in per capita income has to be in real terms, i.e. incorporating changes in
prices
3. A longer time span is taken into consideration, i.e. rise in PCI must be sustained
and prolonged.
Economic Development
Traditional approach: Defines development in strictly economic terms. The exponents of
traditional approach consider development as sustained annual increase in real per capita
income. Thus the terms economic growth and economic development used synonymously.

Welfare-Oriented Approach: Experiences in the LDCs in the past shows that despite high
rates of increase in PCI, there was little or no improvement in employment, reduction in
income inequality and reduction in poverty.

Defining Economic Development

Michael. P. Todaro defines development as a “multi-dimensional process involving major
changes in social structure, popular attitude and national institutions, as well as the
acceleration of economic growth, reduction in income inequality and eradication of absolute
poverty, reduction in unemployment and improvement in material welfare.”
Economic growth and Economic development
Growth Development
1. It is a Quantitative concept, 1. It is a Qualitative concept, measured in terms of
hence measurable indices like HDI, Inequality- adjusted HDI, GDI, Gender
Inequality Index, Multidimensional Poverty Index.
2. Narrow concept
2. Comprehensive Concept implying growth plus change
3. Refers to more output through for the better.
greater use of inputs and greater
efficiency of inputs 3. Includes composition of output, allocation of resources
to different sectors of the economy. Structural changes.
4. Defined strictly in terms of
4. Involves economic and non-economic indicators such
economic indicators, income
as literacy, health.
5. Easier to realize through large 5. More extensive involving changes in society,
increases in inputs and efficiency acceleration of growth.
6. Degree of Govt. intervention is 6. Involves active intervention of the Govt.
less
7. Relates to problem faced by the Developing and LDCs.
7. Relates to problem faced by the
Developed countries
Core Values in the wider meaning of development

• Life sustenance concerned with Basic Needs Approach (Food, shelter,

protection to all masses of the society)

• Self-Esteem concerned with psychological development of an

individual

• Freedom which refers to freedom from three evils of “want”,

“ignorance” and “squalor”.
Growth does not necessarily imply development but economic
development invariably involves economic growth

Economic Growth is a combination of the following factors

• Capital accumulation which includes all new investment in land, physical
equipment and human resources

• Growth of population and eventually growth of the labor force

• Technical progress resulting from new and improved ways of accomplishing

tradition and also tends to a rise in GNP
SEN-BHAGWATI DEBATE
Video: The Last Word: Sen or Bhagwati - Who has the better solution for
tackling the country's poverty?
https://www.news18.com/videos/india/the-last-word-319-627500.html
SEN-BHAGWATI DEBATE
Amartya Sen Jagdish Bhagwati
Idea culminates into the Capability theory Gujarat Model as a metaphor for primary
which would act as a push factor for economic growth and private entrepreneurship leading
growth. to development
Kerala experience - high social spending Focus on Growth could yield enough
(state-sponsored scheme) resulting in resources for investing in social sector
growth- role model for other states schemes.
Invest more in its social infrastructure to Initially growth may raise inequality but
boost the productivity and thereby raise sustained growth will eventually raise enough
growth. resources to for the state to redistribute and
mitigate the ill effects of the initial inequality.
Emphasizes development of Human
Capital (health and education) Growth and welfare programs are necessary
but not at the cost of each other.
Without such investments inequality will
Subsidies that do not benefit the poor should
widen and falter the growth process.
be withdrawn.
Human development Index (New Version-2018 Update)
What is HDI?
• The Human Development Index (HDI) is a summary measure of
achievements in three key dimensions of human development.
1. Long and Healthy Life measured by Life Expectancy at birth
2. Knowledge measured by:
Mean Years of Schooling
Expected Years of Schooling
3. Decent Standard of Living measured by GNI per capita PPP $
• The HDI is the geometric mean of normalized indices for each of the three
dimensions.
Human Development Index | Human Development Reports (undp.org)
HDI Dimensions and Indicators

SDG3- Good Health and Well-Being

SDG4.3-Equal access for all women and men
to affordable and quality technical, vocational
and tertiary education, including university
SDG4.4-Substantially increase the
number of youth and adults who have
relevant skills, including technical and
vocational skills, for employment, decent
jobs and entrepreneurship

SDG8.5-Achieve full and productive employment and

decent work for all women and men, including for young
people and persons with disabilities, and equal pay for work
of equal value
Human Development Index (Old Version)
Components of HDI
1. Longevity measured by Life Expectancy at Birth
2. Educational Attainment measured by
Adult Literacy Rate (2/3rd weight)
Gross Enrolment Ratio (Primary, Secondary and Tertiary) (1/3rd
weight)
3. Adjusted Real GDP per capita

PPP GDP is calculated after eliminating price differences among countries.

Method for calculating HDI
Formula of HDI = (IHealth x IEducation x IIncome)1/3
India’s HDI increased to 0.644 in 2022, placing the country 134 out of 193 countries
India shows progress in Human Development Index, ranks 134 out of 193 countries | United Nations Development
Programme (undp.org
)

https://hdr.undp.org/data-center/specific-country-data#/countries/IND
HDI Ranking-INDIA
Human Development Index | Human Development Reports (undp.org)
https://hdr.undp.org/data-center/country-insights#/ranks
Human Development Classification
World Development Report Classification

The new thresholds, as of July 1,2023-2024 are:

1. Low Income Countries (LICs) with GNI p.c. $1,135 or less
2. Middle Income Countries (MICs)
Lower MICs $1,136 to $4,465
Upper MICs $4,466 to $13,845
3. High Income Countries (HICs) with GNI p.c. $13,845 or more
INDIA-2021
• India’s HDI increased to 0.644 in 2022, which put the country in the medium human
development category− positioning it at 134 out of 191 countries and territories.
• Switzerland Ranked 1 with 0.967
• India is among the Upper MICs with GNIp.c. 6,591 (constant 2017 PPP$)
The Multidimensional Poverty Index (MPI) reflects the
deprivations that a poor person faces simultaneously with respect
to education, health and living standards
Basic Characteristics of the Indian Economy as Developing
Economy
1. Low per capita income, i.e. low levels of living and productivity
2. Low levels of Human Capital
3. High rate of population growth and Dependency Burden
4. High levels of inequality and absolute poverty
5. Greater Social Fragmentation
6. Larger Rural Population with Rapid Rural-Urban Migration
7. Substantial Dependence on Agricultural Production and Lower Levels of
Industrialization and Manufactured Exports.
8. Under-developed Financial Market
9. Lingering Colonial Impacts
10. External Dependence