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Basic issues in economic development of India

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Basic issues in economic development of India

  1. 1. UNIT – I BASIC ISSUES IN ECONOMIC DEVELOPMENT Prepared By: Charu Sarin 1
  2. 2. CONTENTS  Concept and Measures of Development and Under- development.  Categorization of Economies  Economic Growth and Economic Development  Prof. Goulet Three Core Values of Development  Common features of Under developed Countries  Causes of Underdevelopment  Factors in Development  Human Development and its Components  Human Development Index (HDI)  Environmental Issues and Policy & Sustainable Development. 2
  3. 3. INTRODUCTION  The world today presents a picture of sharp contrasts b/w the advanced and backward countries.  About 1/6th of world’s population lives in countries which are classified as rich, advanced or developed economies.  Included among these developed countries are the USA, Canada, countries of western Europe, Australia, New Zealand and some countries of Asia such as Japan, Singapore, Hong Kong, etc.  These developed countries together account for just about 16% of world population with over 73% share in world income, thus enabling their people to have high living standards and better quality of life.  On the other hand, the backward or underdeveloped countries accounting for over 70% of world population have a mere 14% share in world income. 3
  4. 4. DEVELOPED, UNDERDEVELOPED AND THE DEVELOPING ECONOMIES  THE DEVELOPED ECONOMIES are the high income countries such as . These countries have strong and diversified economic structures, well developed industrial, agriculture and service sectors, efficient, skilled and well disciplined manpower, all of which contribute to their higher national and per capita income and ensure decent standard of living to their people.  It should be kept in mind that every high income country is not necessarily a developed economy.  To be categorised as a developed economy, the country must have ‘strong and diversified economic structure’. 4
  5. 5. DEVELOPED, UNDERDEVELOPED AND THE DEVELOPING ECONOMIES  UNDERDEVELOPED ECONOMIES refers to that state of an economy where levels of living of masses are extremely low due to very low levels of per capita income resulting from low levels of productivity and high growth rates of population.  In simple words, underdeveloped country is just another name by which a poor backward country is known.  Acc to Jacob Viner, underdeveloped country is a one “which has good potential for using more capital or more labour or more available natural resources, or all of these, to support its population on a higher level of living”  These countries have the capabilities for achieving higher growth rates and need a big push through some strong domestic efforts as well as some outside help. 5
  6. 6. DEVELOPED, UNDERDEVELOPED AND THE DEVELOPING ECONOMIES  DEVELOPING COUNTRIES Underdeveloped countries are these days referred to as the developing countries signifying that these poor underdeveloped nations are capable of making reasonable economic progress through organised efforts, well conceived policies and with a measure of economic assistance provided by the advanced countries. A developing economy is essentially an underdeveloped economy on the march to progress and prosperity. The underdeveloped or the developing countries are also known as countries of the ‘Third World’ or the Third World Nations. 6
  7. 7. COMMON FEATURES OF UNDERDEVEOPED COUNTRIES  Low Per Capita Income The level of income as measured by per capita real GNI is very low in underdeveloped countries. In 2010, per capita GNI as measured in USD was $380 in Ethiopia, $640 in Bangladesh and $1340 in India as compared to $47,140 for USA and $70,350 for Switzerland (based on the prevailing exchange rates b/w USD and currencies of other countries).  Low Levels of Living Since, about 3/4th of world’s population lives in underdeveloped countries which have less than one-fifth share in world income. It is obvious that a vast majority of people in these countries that must be living under conditions of poverty, malnutrition, disease, illiteracy, etc. even basic necessities of life are not available to them.  Highly Unequal Income Distribution Apart from wide gap between income levels in advanced and underdeveloped economies there also exist grave income inequalities between the rich and poor people within the underdeveloped countries.#7
  8. 8.  Widespread Poverty  Low Levels of Productivity  High Rates of Population Growth  Low Rates of Capital Formation  Technological Backwardness  Predominance of Agriculture in the Economy  Export of Primary Products  High levels of Unemployment and Underemployment  Weak Infrastructure  Low Social Indicators of Development  Dependence and Vulnerability in International Relations  Poor Quality of Human Capital 8
  9. 9. CAUSES OF UNDERDEVELOPMENT  Scarcity of Natural Resources  Shortage of Capital  Technological Backwardness  Colonialism  Other Factors 9
  10. 10. ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT 10
  11. 11. INTRODUCTION  Economic growth can be defined as a process whereby country’s real national income increases over a long period of time.  the concept of economic growth thus refers to (a) increase in country’s real national and per capita income and that (b) this increase is sustained over a long period of time. That is, it is concerned with increase in national income.  The concept of economic development, however, not only concerns itself with increase in income, but with its composition and distribution as well.  It is quite possible that national and per capita income may increase, yet more and more people may become poor if due to extremely unequal income distribution pattern, the richer sections of society get all the increased income. 11
  12. 12.  Hence, economic development covers the process of achieving long-term increase in income, as well as a more equitable income distribution along with adopting some measures of poverty alleviation. 12
  13. 13. ECONOMIC GROWTH  Economic growth is the process of sustained increase in real national and per capita income over a long period of time. Some important features of associated with growth are: 1. Economic Growth Implies a Process of Increases in National Income 2. Economic Growth is Measured by Increase in Real National Income 3. Increase in Per Capita Income 4. Increase in Real Income should be over a long period 5. Increase in Income should be based on increase in productive capacity. 13
  14. 14. ECONOMIC DEVELOPMENT: A WIDER CONCEPT 14
  15. 15. FACTORS IN DEVELOPMENT Economic Development is a complex phenomenon, it involves changes in the level of structure and production, as well as distribution of national income, reduction in poverty and unemployment along with sustained long-term increase in real national and per-capita income. It involves changes in social attitudes and behaviours of people. A large no. of economic as well as non-economic factors contributing to development of an economy. 15
  16. 16. 1. NATURAL RESOURCES  Availability of natural resources in abundance is an important factor in a country’s economic development. The developed countries like the USA, Canada, Australia, New Zealand, etc have abundance of natural resources.  However it does not mean that all these countries that have natural resources in abundance, are among the advanced nations.  Countries which intend to initiate the process of economic growth must direct their efforts to make fuller use of their existing resources and exploration of new resources 16
  17. 17. 2. CAPITAL FORMATION  Adequate availability of capital is the most essential requisite of economic development. In all the advanced nations, high rate of capital formation or steady increase in supply of capital has played the most important role in the process of their development.  One of the most crucial factor in economic development  Capital formation involves:- Savings Mobilization of Savings Investment 17
  18. 18. ROLE OF CAPITAL IN ECONOMIC DEVELOPMENT National Technical Exploitation of Increase in Income Progress Natural Resources Supply & Demand Per Capita Employment Labor Income Efficiency CAPITAL FORMATION 18
  19. 19. CONTD... 1. NATIONAL INCOME: Growth rate of national income is determined, to the large extent , by the rate of capital formation. The higher the rate of capital formation, the greater is the addition to productive capacity of a nation, i.e., a greater flow of goods & services and higher national income. 2. PER CAPITA INCOME: Since, the objective of economic development is to achieve a substantial increase in PCI and improve living standards of people, rate of capital formation must be high in order to increase output and income levels of the country in order to meet the demands of rapidly increasing population. 19
  20. 20. 3. TECHNICAL PROGRESS: It means development and application of new techniques of production. To incorporate new technology in the production process or in order to modify the existing plants, a larger investment to procure or produce new equipment is required, hence a higher rate of capital formation is necessary to support technological progress. 4. EMPLOYMENT: With higher rate of capital formation, the productivity and output levels can be increased and there will be a generation of various employment opportunities in order to meet the output and productivity level. 5. EXPLOITATION OF NATURAL RESOURCES: To make use of the natural wealth, a necessary amount of capital is needed so that they can be used to their fullest. 20
  21. 21. 6. LABOUR EFFICIENCY: Increase in stock of capital enables labour to work with greater efficiency, because efficiency to the large extent depends on the nature and type of the equipment they are working with. 7. SUPPLY AND DEMAND FOR GOODS & SERVICES: Capital formation increases productive capacity and expands volume of goods and services produced, and on the other hand it increases the rate of investment, which in turn creates income for the workers and increased income creates additional demand for goods produced. 21
  22. 22. CAPITAL REQUIREMENTS FOR ECONOMIC GROWTH It depends upon: (i) The target of growth rate envisaged (that depends upon the planning process of the nation, its capacity to overcome problems and potential resources available) and (ii) The capital output ratio, i.e., how much capital is used in producing a single unit of output. 22
  23. 23. 3. HUMAN CAPITAL  HRD or Human Capital formation means creation of capabilities and capacities in people to work efficiently and competently in various economic activities.  Investment on human beings in the form of education, training and health facilities that contribute to increased productivity is called ‘human capital formation’. In developed nations the health and education levels are much higher, and with better health and education, these countries produced larger output and higher incomes.  The role of human capital formation in economic development can be stated in the terms of increase in output, in productive capacity, improved quality of life and increase in inventions and innovations. 23
  24. 24. 4. TECHNICAL PROGRESS  It implies discovery of new production methods and their application in various fields of activity to increase output and productivity.  Use of modern technology has revolutionized all spheres of economic activity be it agriculture or any other activity.  LDC’s lack in the development and creation of new technology, however they can purchase those from other nations but still they require huge amount of capital for the purchase, installation, and operation of the new equipment. 24
  25. 25. 5. INSTITUTIONAL FRAMEWORK  These are the rules and conventions that govern human behaviour and interactions.  Development requires that these institutions are reformed and modernized to meet the requirements of progressive socio-economic structure through spread of education, awareness and change in the mindset of people. 25
  26. 26. 6. ENTREPRENEURSHIP  Entrepreneurial activity is regarded as the vehicle of economic development in the capitalist economies.  To boost the pace of economic development, it is very necessary to expand the supply of entrepreneurship by creating a favorable social and economic atmosphere. 26
  27. 27. 7. POPULATION GROWTH  Growth of population is not always a curse for the society but sometimes it can be a boon as well, increasing population provides opportunity for expanding market base in the terms of demand and supply of goods and services, and more work force for producing such output.  However this may not be true every time. 27
  28. 28. NON-ECONOMIC FACTORS a) Spread of Education b) Desire for Material Betterment c) Social Institutions d) Political Conditions 28
  29. 29. ECONOMIC DEVELOPMENT SEN’s CAPABILTIES APPROACH  Given by Nobel laureate in Economics, Amartya Sen in 1998  Acc to Sen, poverty cannot be measured properly by income or even the goods and services available to the people or even by utility. What matters is not the things that a person has but what a person can do or does with those things.  It is the capability to function that defines welfare or happiness that is the core of economic development.  What a person does with the commodities ultimately determines his well-being, richness or poverty.  The concept of “functionings” is central to Sen’s “capabilities” approach of economic development.  A country with high levels of income but poor health and low educational standards is a case of “growth without development” 29
  30. 30. HUMAN DEVELOPMENT Gender Related Development Index (GDI)  It is one of the disaggregated measures of HDI which seeks to reflect the extent of equality or inequality in the development of women in the overall scheme of human development.  Thus, while HDI measures the achievements in respect of human well-being, GDI measures the equality or inequality of these achievements between men or women, i.e., gender differences in achievement.  Higher HDI and lower GDI indicates Gender inequality. 30
  31. 31. Human Poverty Index (HPI)  Introduced by UNDP in 1997 with the view to measure the extent of deprivation and the degree of poverty in an economy  Same parameters are used that are used in HDI and HPI is the average of these three components.  Scale of measurement of deprivation is from 1 to 100, countries with high HDI have low HPI. Gross Well-Being Index (GWI)  The main emphasis of GWI is on the fact that people may be poor, yet they are very happy.  People can not be poor in happiness but poor in food security, that’s why international assessment of human conditions need to be graded finely. 31
  32. 32. ENVIRONMENTAL ISSUES AND POLICY & SUSTAINABLE DEVELOPMENT.... 32
  33. 33. INTRODUCTION…  Environment means the surroundings or conditions of life, may be social, political, economic, cultural, natural etc.  Natural resources are used with other man made resources in order to produce goods in agriculture, industry or other spheres of economic activity.  With continuous use of these natural resources some get depleted, some may get degraded (lose their quality) or some may get polluted, as such on account of these, the future generation will not get enough of such resources for their use and that will adversely affect their output, income, and living standards.  Therefore, we should preserve environment by minimizing harm to it through depletion and pollution. 33
  34. 34. FUNCTIONS OF ENVIRONMENT 34
  35. 35. ENVIRONMENTAL CRISIS  The rapid Industrialization in past years, rising income, higher consumption levels of the people and rapidly increasing population in the under-developed countries have created a huge burden on environment, this has lead to environmental crisis in the form of depletion of ground water resources, dried river, barren lands, polluted atmosphere, etc.  Reasons for such crisis are:- 1. SUPPLY-DEMAND REVERSAL OF ENVIRONMENT: Earlier supply of environmental resources was in excess to their demand and so there was no crisis. But now the situation has changed, supply has fallen short of demand. This situation of demand exceeding supply is called supply demand reversal, which is the main cause of environmental crisis. 35
  36. 36. REASONS CONTD.. 2. OPPORTUNITY COST OF NEGATIVE ENVIRONMENTAL IMPACT:  The exhaustion of some natural resources has lead to extensive efforts and expenditure on research, development and discovery of some alternative supply of such resources. Huge amount are now being spent on improving environment.  All these financial expenditure are the opportunity costs of the negative environmental impact of past and present industrial development strategy. 36
  37. 37. ROLE OF ENVIRONMENT IN ECO DEVELOPMENT  The productivity of an economic system depends, to a large extent, on the supply and quality of natural & environmental resources.  Environmental degradation causes depletion of natural assets and losses in human efficiency and there by reducing productivity and hampering economic growth.  E.g.- air and water pollution, soil degradation, etc. 37
  38. 38. SOME BASIC ISSUES… SUSTAINABLE DEVELOPMENT: It is the process of economic development wherein a balance is maintained between economic growth and economic preservation. Sustainable development ensures that resources are used in such a way so that future generation should have at least same, if not more, access to those resources. POPULATION, RESOURCES AND ENVIRONMENT: Rise in population leads to the consumption of more resources and as such their exhaustion which leads to degradation of environment. 38
  39. 39. ISSUES CONTD… POVERTY AND ENVIRONMENT: Poor people with not much access to other resources, directly depend on the exploitation of natural resources such as forest produce, wood cutting, etc. GROWTH VS ENVIRONMENT: Improving in the economic status of people(poor), will result in less damage to environment. However it is not easy to bring rapid economic growth while keeping environmental degradation at a minimum level. THE GLOBAL ENVIRONMENT: With the growing world population and rising global income and consumption levels, global environmental degradation is bound to worsen at a rapid pace. 39
  40. 40. GLOBAL WARMING AND CLIMATE CHANGE  Global warming refers to a slow but steady rise in the average temp of earth’s surface, lower atmosphere and seas and oceans.  It is mostly associated with the release of excessive amounts of greenhouse gases (GHG), these include CO2, CH4, water vapour, etc. These gases act as a greenhouse around the earth.  COSEQUENCES:  Change in the water cycle  Rise in sea levels (0.5mm/yr)  Changes in profile of species and forests  Changes in productivity and crop output  Spread of diseases and epidemics 40
  41. 41. RESPONSES TO CLIMATE CHANGE 1. MITIGATION: Reducing the amount or extent of future climate change is called mitigation of climate change. It involves those activities that reduce greenhouse gas emissions and increasing use of renewable energy. In 1997, the Kyoto protocol was adopted. 2. ADAPTATION: Since a substantial adverse change in climate appears to unavoidable, the process of adaptation to climate change must have priority. These are the measures that have to be taken, given the very high likelihood that climate change will occur and will have adverse effects. The most important adaptation measure is DEVELOPMENT itself. 41
  42. 42. STATE OF ENVIRONMENT IN INDIA  ECONOMIC DEVELOPMENT AND ENVIRONMENTAL PROBLEMS: Environmental problems of India have grown substantially over the past half a century due to the process of economic development which did not integrate environmental protection in its list of priorities till the Sixth Five-Year Plan (1980-85).  LAND AND SOIL DEGRADATION: Most of the land area in the country shows evidence of degradation, thus adversely affecting the productive resource base of the country. Erosion by water and wind is the most significant source of soil degradation.  DEFORESTATION: The forest area is about 63 million hectares which is barely 19 per cent of the geographical area of the country and it is declining over the years. 42
  43. 43.  ATMOSPHERIC POLLUTION: Air pollution has become an acute problem and a serious health hazard in the country, more particularly in mega cities and industrial townships. High concentration of SO2 and NO are the most common and highly dangerous air pollutants, giving rise to various diseases.  WATER POLLUTION: Water quality in India is not of a very safe standard and is full of impurities.  SOLID WASTES: It is in the form of garbage, have become a major source of pollution in urban areas and mega cities. It consist of heterogeneous mixture of paper, plastic, cloth, metal, glass, organic matter generated from households, and commercial establishments. 43
  44. 44. CAUSES OF ENVIRONMENTAL DEGRADATION 1. Population: Rapidly growing population needs more food and thus more land to be put under cultivation and more land for building their residence through clearing of land under forests. 2. Urbanization: Growing pressure of population along with lack of opportunities for employment has led to increasing movement of people from the villages to cities, the migration has led to unplanned growth of cities, expansion of slums, thus causing unbearable strain on infrastructural services such as water, housing, electricity, etc. 44
  45. 45. CONTD… 3. Poverty: The poor people particularly do not have access to other sources for their livelihood, thus they are directly or indirectly dependent on natural resources, this causes not only loss of natural assets and environmental degradation but also perpetuates poverty by transmitting lesser amount of resources to the next generation. 4. Level and Pattern of Economic Development: India’s development plans have been guided by the major objective of achieving a high rate of growth with substantial growth in industrial production, the production technology adopted in the field of industry has been energy intensive that has led to environmental degradation. 45
  46. 46. CONTD… 5. Transport Development: Development of transport system based on intensive use of petroleum products has immensely increased air pollution. 6. Agricultural Development: Increase in farm activities have also effected environment, by causing soil erosion, land salinisation and loss of fertility. High use of chemicals, pesticides and fertilizers have affected environment. 46
  47. 47. MEASURES FOR ENVIRONMENTAL PROTECTION 1. Proper Resource Pricing: The natural resources must be properly priced. Subsidies are given on water, electricity, etc but they are invaluably cornered by the better off sections of the society and thus the intended beneficiaries do not gain. 2. People’s Participation- Green Movement: Public participation is an essential ingredient of environmental management along with the use of legal and economic instruments. The scheme of “ECO-LABELLING”. 47
  48. 48. MEASURES CONTD… 3. Poverty Alleviation: If the poverty groups are provided means and resource for gainful economic vacations, this would go a long way to preserve ecological system 4. Reduction in Pollution Levels: 5. Raising the Economic Status of Women: Educating women and making them aware of the environmental issues, would be of a great help in preservation and restoration of environment. 48
  49. 49. SUSTAINABLE DEVELOPMENT Sustainable development attempts to strike a balance between the demands of economic development and the need for protection of natural and environmental assets. This process emphasize on “intergenerational equity”. WHAT MAKES THE DEVELOPMENT ‘UNSUSTAINABLE’ ???? Economic dev Increase in national Y (GNP) For Increased output Greater use of resources Excessive use of these limited resources depletion, degradation and even exhaustion. 49
  50. 50. The production process may involve: (i) Use of some resources which are non-renewable. (ii) Use of resources which may be renewable but whose supplies can not be replenished at the rate at which their depletion takes place. (iii) Use of technology that pollutes atmosphere and water bodies. In the race of development, output is sought to be increased through rapid depletion of resources under unhealthy environmental conditions by the present generation and handing down less to the future generation. The rate of development which cannot be sustain at present rate is “unsustainable development”. 50
  51. 51. ENVIRONMENTAL A/CING & SUSTAINABLE DEVELOPMENT  Environmental accounting means giving due consideration to environmental costs while formulating programmes and projects for economic development. The nation must keep account of its natural resources, its uses in its current economic activity and make suitable provisions in its laws and policies to replenish and hand over to the next generation an equal quantum of these natural resources for use in future. GREEN NNP: NNP* = GNP - Dm - Dn 51
  52. 52. MEASURES FOR ENVIRONMENT PROTECTION 1. Use of Non-Conventional Energy Sources: To minimize pollution, the conventional sources of energy should be replaced by non-polluting renewable energy sources like solar power, wind energy, etc. 2. Organic Farming: The organic farming method that use compost manure and biopest control should be encouraged as it is eco friendly. They in fact help in improving the soil quality. 3. Setting up Wind Power Projects: In the areas where wind flow is substantially higher, wind turbines should be set-up to generate electricity, and mini- hydroprojects should be produced. 52
  53. 53. 4. Use of Solar Power: Solar energy has now emerged as a good means of meeting energy requirements and it is a very good alternative to supplement traditional power sources. 5. Imposing Fee on Use of Natural Resources: The proposal to tax on use of ground water in Delhi is one such step. It will prevent overexploitation of these resources. 6. Replenishment of Natural Resources: Efforts at afforestation and harvesting of rain water for raising water level are the steps that can be taken. 7. Reduction in Pollution Levels: • Pollution levels with in the safe limits and standards. • Moving out of polluting industries from mega cities. • Cleaner fuels to be introduced, Vehicular emission norms to be raised. • Use of Clean technologies to be promoted. 53
  54. 54. 54
  55. 55. REFERENCES  Economic Surveys  WTO Publications  Indian Economy Performance and Policies by B.K. Bhargava and Vandana Sethi 55

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