Page 1 of 5

CHAPTER 1 – DEVELOPMENT
Every economy irrespective of its economic status seeks development. Less developed or
developing economies aims for development so that they can solve problems of poverty,
unemployment and backwardness whereas developed countries seek development to sustain
existing growth rate in future also. Development can be defined as: ‘Development refers to
that process which results in increase in per capita income, reduction in illiteracy,
diseases, inequalities and poverty.’ Thus development includes both economic growth as
well as economic welfare.
Economic growth is a narrow term. It is based on monetary well being of the people of a
country. Growth is generally measured in terms of national income and per capita income.
Economic development is a wider term. It is based on economic well being of the people of
a country. It includes growth as well as economic welfare of people. It is generally measured
in terms of improvement in health and educational facilities. Now there is also a demand to
add judicious use of resources and liberty indicators to it.
Features of meaning of development:
1. The meaning of development is different for different people like-
For a labourer – higher wages, regular work and social benefits.
For a farmer – availability of good quality of seeds, availability of cheap credit and other
inputs, irrigation facility and better price for his crop.
For a manufacturer – availability of power, cheaper inputs, better infrastructure
2. Development for one may be in conflict with the development of other like
construction of Tehri dam is development of states like UP, Delhi and Uttrakhand as will
provide electricity to many industries but it displaced residents of Tehri from their native
place.
3. People and nation seek a mix bag of developmental goals – we don’t pursue single
development goal but many goals. Generally development means increase in income
along with improvement in quality of life. Therefore people also seek safety, freedom, job
security and pollution free environment.
These ‘other goals’ are equally important as earning more income and in some cases
these goals may be more important than goal of earning more money. These goals are
termed as non-material goals/ goods.
Material goods/ Non- Material goods
Material goods refer to those goods and services that can be purchased. On the other
hand, non- Material goods refers to those good which cannot be purchased with money.
For example: Security, self-respect etc.
National Development
Individuals seek different goals, their notion of national development is also likely to be
different. Different persons could have different as well as conflicting notions of a
country’s development. Generally notion of development for a nation is of inclusive and
collective welfare.
 Page 2 of 5
Approaches to measure Economic Development/ How to compare nations
There are two approaches to measure economic development of a nation:
(i)Traditional Approach:
(a) National Income
(b) Per Capita Income
(ii) Modern Approach:
(a) Economic welfare / HDI( includes PCI)
(b) Sustainability of development
Traditional Approach
(a) National Income as indicator of development:
According to this criteria Economic development is the process whereby a country’s real
national income increases over a sustained period of time. Real national income refers to
the money value estimated at constant prices of all final goods and services produced in
the economy in a given year, Country having higher real GNP will be considered more
developed in comparison to the countries having lower real GNP.
Limitations of National income criterion:
1. Population has not been taken into consideration. If the objective is to compare the
countries on the basis of productive capacity, this criterion is appropriate but if we want to
know standard of living of people of that country, this criterion is not sufficient. Despite the
fact that net national income of a country is rising, but if the rate of population growth is
higher than that of the rise in national income, per capita income may be falling instead of
rising. Thus standard of living will be declining.
2. Nature of goods does not ensure welfare. If increase in national income is happening due
to increase in production of liquor or cigarette or arms and ammunition, it can not be the
indicator of development.
3. Ignores non market transactions While calculating national income value non market
transaction (services rendered by housewives for self consumption) are not added though
those are responsible for better standard of living. Due to this short coming national income
underestimates development.
(b) Per Capita Income as indicator of development:
According to this criteria Economic development is the process of growth in the per capita
income of an country. Per capita income refers to average income earned by a person in a
year. It is calculated by dividing national income by the population size.
𝑵𝒂𝒕𝒊𝒐𝒏𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆
𝑷𝒆𝒓 𝑪𝒂𝒑𝒊𝒕𝒂 𝑰𝒏𝒄𝒐𝒎𝒆 =
𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏 𝒔𝒊𝒛𝒆

𝑹𝒆𝒂𝒍 𝑵𝒀
𝑹𝒆𝒂𝒍 𝑷𝑪𝑰 =
𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏

Per capita income helps in comparison of the level of development in different nations in the
world or different regions in a nation. Higher the Real PCI, higher is the availability of goods
and services and therefore better standard of living of the people in that country.
 Page 3 of 5
Limitations of Per Capita income criterion:
1.Ignores distribution of income: PCI hides disparities of distribution of income. It is a
mathematical average. If in a country, income is unequally distributed, there will be
concentration of income in the hands of few rich people and majority of population will be
living in poverty. This country can’t be put on same pedestal of development with other
country having equal distribution of income. ( Numerical example is to be noted from
NCERT book)
2. Nature of goods does not ensure welfare. If increase in national income is happening due
to increase in production of liquor or cigarette or arms and ammunition, it can not be the
indicator of development.
3. Ignores non market transactions While calculating national income value non market
transaction (services rendered by housewives for self consumption) are not added though
those are responsible for better standard of living. Due to this short coming national income
underestimates development.
The World Bank uses PCI criterion in classifying countries and publishes it in World
Development Reports,
1. Countries with per capita income of US$ 12,056 per annum and above in 2017, are
called rich countries.
2. Countries with per capita income of US$ 955 or less are called low-income countries.
India comes in the category of low middle income countries because its per capita
income in 2017 was just US$ 1820 per annum.
The rich countries, excluding countries of Middle East and certain other small countries, are
generally called developed countries.
Modern Approach
In modern approach various economists have developed more comprehensive indicators of
development in terms of the quality of life. There are generally two quality of life indices.
(a) Physical Quality of Life Index: PQLI takes into account the following three indicators
as indicators of the quality of life of a country.
1. Infant Mortality Rate (or IMR) indicates the number of children that die before the age
of one year
as a proportion of 1000 live children born in that particular year.
2. Literacy Rate measures the proportion of literate population in the 7-and-above age
group.
3. Life Expectancy refers to the number of years new born children would live.
(b) Human Development index: The concept of HDI was introduced by the United Nations
Development Programme (UNDP), an agency of the United Nations, in its first Human
Development Report in 1990. The Human Development Index (HDI) is a statistic
composite index of life expectancy, education, and per capita income indicators, which
are used to rank countries into four tiers of human development. A country scores a
higher HDI when the lifespan is higher, the education level is higher, and the gross
national income GNI (PPP) per capita is higher. It was developed by Pakistani
economist Mahbub ul Haq and Indian economist Amartya Sen.
 Page 4 of 5
Indicators of HDI:
1. Life Expectancy at Birth denotes average expected length of life of a person at the time
of birth.
2. Mean Years of Schooling of people aged 25 and above (2017) Average number of
years of education received by people ages 25 and older, converted from educational
attainment levels using official durations of each level.
3. Gross National Income (GNI) Per Capita (2011 PPP$) is calculated in dollars for all
countries so that it can be compared. It is also done in a way so that every dollar would buy
the same amount of goods and services in any country.
Finally, the HDI value is the geometric mean of the three normalized indices. HDI rank is
allotted to countries on the basis of this HDI value. (see NCERT book)
There are some other criteria which are used by economists:
Net Attendance Ratio is the total number of children of age group 14 and 15 years attending
school
as a percentage of total number of children in the same age group. This is the criterion of
measuring educational standard of a country.
Body Mass Index It is the measure used to identify the nutrition level in a body of an adult.
It is calculated using the formula-
B.M.I = Weight (in kg) / Square of Height (in m)
Its extreme limits are- Min 18.5 and Max 25
The entire criterion related to education and health can be attained only with the availability
of public facilities.
Public Facilities: Public facilities are the services or facilities provided by government for
collective consumption. They can not be purchased or arranged at individual level due to
high cost and non viability of production at individual level.
Availability of more public facilities indicates higher level of development and vice-versa.
They are essential for better standard of living ang good quality of life. Following are the
main types of public facilities:
1. Availability of good quality of educational institute for all.
2. Adequate provision of health facilities for all.
3. Good infrastructure
4. Pollution free environment
5. Provision of safe drinking water and sanitation for all
6. Good law and order condition in country
7. Provision for public distribution system and unadulterated medicines and eatables
(c) Sustainability of Development: Modern approach to the concept of development is
focusing now on sustainable development. Sustainable development refers to process of
development which meets the needs of present generation without reducing the ability of
future generations to meet their own needs.
Features of sustainable development on the basis of above definition are:
1. Sustained rise in real per capita income and economic welfare
2. Rational use of natural resources
 Page 5 of 5
3. No reduction in the ability of future generation to meet their own needs
4. No increase in pollution
There are two issues which need immediate attention:
1. Overuse of ground water:
Causes are :
(a) After Green Revolution demand for water increased in HYV seeds and farmers
shifted to tube well irrigation.
(b) With rapid urbanisation more land is getting converted into concrete structures
and seepage of rainwater in the ground has reduced.
2. Depletion of fossil fuels reserves: Fossil fuels are available only for 50 years more.
Impact of this exhaustion of resources:
(a) Countries like India who are heavily dependent on oil for energy, will have to pay
higher price due to decreased supply and will be short of money for other areas of
development.
(b) Power struggle and even war like situation to control the access this precious
resource is visible in present world.
(c) Political interference in the dependent countries by the countries who have the
control over this resource