Economic development

Implies progressive changes in the socio-economic

structure of a country Implies trends in income and structural changes Implies changes in the level of output and technical and institutional arrangements by which it is produced Implies increase in the economys real national income over a long period of time

Definitions for economic development

According to Streeten, development means

modernization or transformation of human resources, which brings a change in fundamental attitude of lifestyle, work as well as cultural, social and political institutions.
Prof Meier and Baldwin , economic development is a

process where by an economys real national income increases over a long period of time.
Charles P Kindleberger, economic development implies

changes in technological and institutional organisation of production as well as in distributive pattern of income.

Economic growth
Implies expansion of nations capacity to manufacture

goods and services which its people desires Involves an enhancement in actual output of goods and services over a period of time Implies an increase in the per capita income of the country at constant prices Substantial rise in both total population as well as national income

A contrast- economic growth and economic development

Economic growth refers to growth of those of developed

countries whereas economic development refers to problems of under developed countries

Economic growth is related to a quantitative sustained

increase in countrys per capita output or income whereas economic development relate to qualitative changes in economic wants, commodities, incentives etc

 economic growth is a gradual and steady change in the

long run which causes about by a gradual increase in the rate of saving and population, whereas economic development is a discontinuous and spontaneous change in a stationery state
Economic growth implies more output whereas

economic development means both output as well as changes in institutional and technological arrangements by which it is produced and distributed

 In case of developed countries, economic growth

implies raising of income levels whereas in case of developing countries economic development is the word used to denote raising levels of income Economic growth is an expansion of system in one or more dimensions without any structural change whereas economic development is an innovative process resulting from structural transformations of social system or social structure

Determinants of development
Economic factors Non-economic factors
Economic factors:

-availability of natural resources -efficient human resources -growth rate of population -capital formation -occupational structure -technological progress -removal of market imperfections -suitable investment pattern -economic planning

 Non-economic factors

-human resources -technical know-how and general education -political freedom -social organisation -corruption -desire to develop -efficient government

Indicators of economic development

Gross national product
Per capita income Economic welfare

Social indicators

Problems in the measurement of economic development

Conceptual difficulties
Selection of techniques of estimation Selection of appropriate stage of estimation

Statistical difficulties
Existence of non-monetised transactions Double counting Transfer paymentss

Analysis of Indian economy

India- as an underdeveloped economy
India- as a developing economy India- a mixed economy

India-an underdeveloped economy

Low per capita income-

in 2007 per capita income was as low as $950, that is only 1/50th of the USAs per capita income.
Inequitable distribution of income and wealth-

-lowest 20% households accounted for 8.9% of the aggregate household expenditure -modest 60% households accounted for 50.5% of the aggregate household expenditure -top 20% households accounted for 41.6% of the aggregate household expenditure -meagre purchasing power and will not create demand for industrial products -problem of mass poverty

 Predominance of agriculture

1951 70% of the population of the country was dependent on agriculture 1991 56.9% of the population of the country was dependent on agriculture contribution of primary sector to the GDP is only 17.8% only 2% of the US working population is engaged in agricultural operations

 Rapid population growth

-Indias population in 2007 was 1,123 million as against 361 million in 1951. -rate of growth of population has decreased from 2% to 1.5% -major constraint on the growth of the business -resources are diverted towards low return agriculture rather than higher return manufacturing

 Unemployment

1n 2004-05 rural male unemployment was 80 per thousand and rural female unemployment was 87 per thousand - urban male unemployment was 75 per thousand and rural female unemployment was 116 per thousand -disguised unemployment in agriculture -educated unemployed in urban areas

 scarcity of capital

rate of savings and investment have risen but the rate at which it has increased is not sufficient to accumulate capital -low capital formation proportion means low rate of growth of national product
Technological backwardness

-techniques of production are backward in India

Lack of entrepreneurs

India-a developing economy

Economic development in India can be discussed under

two broad classification ----quantitative ----structural Quantitative-national income trends, In 1950s NNP increased at 3.4% In 1980s NNP increased at 5.6% In 1990s NNP decreased to 5.3% In 2006 NNP increased at 7.8% per annum In 2007- NNP increased to 9.1% per annum In 2008- NNP decreased to 6.7% due to economic slowdown

Structural changes
Significant changes in sectoral distribution of

domestic product: --steady decline in the importance of agriculture and allied activities in the economy in terms of contribution to the GDP --the share of output in the industrial sector comprising mining and quarrying, manufacturing, electricity, gas and water supply was 10.6% of GDP in 1950-51, now it has increased to 18.5% of GDP in 2007-08 --the share of service sector to the GDP was 34.3% in 1951-52, increased to 64.5% of GDP in 2008-09

 Growth of basic capital goods industries

-in the second five year plan, priority was accorded to capital goods industries. Consequently, a large number of basic industries which produce capital equipment and useful raw materials have been set up making the countrys industrial structures strong. These industries now constitute for more than 50% of the total industrial production

ss
Development of infrastructure:

the World Development Report 1994 remarked, infrastructure represents, if not the engine, then the wheels of economic activity -the transport system over the past four decades has grown both in terms of capacity and modernisation -the railway route length has increased by more than 9000 kms -steam locomotives have been replaced by diesel and electric locomotives

-Indian road network is now one of the largest in the world as a result of spectacular development of roads under different plans -the total road length comprising National highways, State highways and other roads is 32.2 lakh kms -over the past six decades there has been a massive increase in installed electricity generating capacity in the country, it was 1,47,965 MW at the end of Mar 2009

-the Indian telecommunication network is now third largest in the world and the second largest among the emerging economies of Asia -there were more than 300 million telephone connections in march 2008

 Progress in the banking and financial sector:

-improvement in the money and capital markets -specialised industrial financing institutions were set up -banking services have increased and modern banks have reached small towns and villages - Spectacular increase in the growth of commercial banks and co-operative credit societies - control of big capitalists on the finance capital by nationalisation of banks -policy of liberalisation is being pursued without abandoning regulations -SEBI was set in 1988 to regulate and develop capital market

India a mixed economy

The main features of Indian Economy which determines that it is a mixed economy are as follows Private ownership of the means of production Predominance of the market Growth of private sector monopolies Public sector co-exists with the private sector Economic planning

Business cycle
Meaning of a business cycle:

wavelike fluctuations of business activity characterised by recurring phases of expansion and contraction in periods varying from three to four years Definition: Business cycles are a type of fluctuations found in the aggregate economic activity of nations that organise their work mainly in business enterprises. A cycle consists of expansions occurring at about the same time in many economic activities followed by similarly general recessions, contractions and revivals which merge with the expansion phase of the next cycle. This sequence of change is recurrent but not periodic.

Characteristics of busiess cycles

Recurring fluctuations
Period of business cycle is longer than a year Presence of the alternating forces of expansion and

contraction Phenomenon of the crisis

Phases of business cycles

Prosperity or expansion
Recession Depression or contraction

recovery

Prosperity or expansion
Begins from an equilibrium position under the stimulus of

forces which create expectations of rising profits Induces entrepreneurs to increase the scope of their economic activity Employ more people in their industries Order more raw-materials More demand for consumption goods Supply cannot meet demand and hence lead to a rise in the price Expansion in bank credit and the supply of currency

Generally wholesale prices rise more than retail prices Cost price of various inputs also rise Boost up the stock prices of stock exchange securities Induces banks to expand their credit facilities Setting up of new factories and plants, increased production of heavy engineering goods, construction of commercial housing complexes and work on power projects are witnessed Stock up their products with expectations of further increase in prices

 Reasons for the end of prosperity or expansion stage:

gradual rise in factor prices decreasing profit margin rising unit costs of production