ECONOMIC GROWTH AND DEVELOPMENT

A FINAL DRAFT SUBMITTED IN THE PARTIAL FULFILLMENT OF

THE COURSE MACRO ECONOMICS FOR THE REQUIREMENT OF
THE DEGREE B.A. (LLB) SESSION 2020 – 2021

SUBMITTED BY

NAME – ABHIJEET KUMAR CHOUDHARY

ROLL NO – 211904

IV SEMESTER

SUBMITTED TO

DR. SHIVANI MOHAN

ASSISTANT PROFESSOR OF ECONOMICS

MARCH 2021

CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR MITHAPUR, PATNA (800001)

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 ACKNOWLEGEMENT

The researcher takes this opportunity to express his profound gratitude and deep regards to
his guide DR. SHIVANI MOHAN for her exemplary guidance, monitoring and constant
encouragement throughout the course of this thesis. The blessings, help and guidance given
by her time to time shall carry the researcher a long way in the journey of life on which the
researcher is about to embark. The researcher is obliged to staff members of Chanakya
National Law University Patna, for the valuable information provided by them in their
respective fields. The researcher is grateful for their cooperation during the period of his
assignment. Lastly, the researcher would like to thank almighty, his parents, brother, sister
and friends for their constant encouragement without which this assignment would not be
possible.

THANK YOU

ABHIJEET KUMAR CHOUDHARY

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 DECLARATION

I hereby declare that the work reported in the B.A. LLB (Hons.) project report entitled -

ECONOMIC GROWTH AND DEVELOPMENT submitted at Chanakya National Law

University Patna, is an authentic record of my work carried under the supervision of DR.

SHIVANI MOHAN. I have not submitted this work elsewhere for any other degree or

diploma. I am fully responsible for the contents of my project report.

ABHIJEET KUMAR CHOUDHARY

ROLL NO - 211904

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 TABLE OF CONTENT

I. INTRODUCTION…………………………………………..5 - 8

AIMS AND OBJECTIVES…………………………………...7

HYPOTHESIS………………………………………………...7

RESEARCH METHODOLOGY……………………………..7

SOURCES OF DATA…………………………………………7

LIMITATIONS………………………………………………..8

II. THE IMPACT OF HUMAN RESOURCE ON GROWTH AND

DEVELOPMENT………………………………………….9 - 11

III. INVESTMENT IN PHYSICAL CAPITAL WILL REDUCE COST OF

PRODUCTION…………………………………………….12 - 13

IV. A SHORTAGE OF SKILLED LABOUR CAN BE DETTERRANT TO

ECONOMIC GROWTH……………………………………14 - 15

V. CONCLUSION AND SUGGESTIONS…………………….16 - 17

BIBLIOGRAPHY………………………………………………18

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 I. INTRODUCTION

Economics is all about making smart choices to cope with scarcity. The most fundamental
measurement used to evaluate the success in allocating the scarce resources is economic
growth. Individuals monitor their income and the changing value of their assets. Businesses
track their profits and their market share. Nations monitor a variety of statistics to measure
economic growth such as national income, productivity etc. Moving beyond growth and
productivity, some economists argue that any assessment of the nation’s economy must also
include measurements of distribution, equity, per-capita income etc. Further, the country
should also focus on other needs of a society, like environmental justice or cultural
preservation to sustain the economic growth process and allows an overall human
development in the economy through creation of more opportunities in the sectors of
education, healthcare, employment and the conservation of the environment.1

The term economic growth is defined as the process whereby the country’s real national and
per capita income increases over a long period of time. This definition of economic growth
consists of the following features of economic growth:

 Economic Growth implies a process of increase in National Income and Per-Capita

Income - The increase in Per-Capita income is the better measure of Economic
Growth since it reflects increase in the improvement of living standards of masses.
 Economic Growth is measured by increase in real National Income and not just the
increase in money income or the nominal national income - In other words the
increase should be in terms of increase of output of goods and services, and not due to
a mere increase in the market prices of existing goods.
 Increase in Real Income should be Over a Long Period - The increase of real
national income and per-capita income should be sustained over a long period of time.
The short-run seasonal or temporary increases in income should not be confused with
economic growth.
 Increase in income should be based on Increase in Productive Capacity - Increase in
Income can be sustained only when this increase results from some durable increase
in productive capacity of the economy like modernization or use of new technology in

1
Simon Johnson. 2006. Disease and Development: the Effect of Life Expectancy and Economic Growth. Bureau
of Research and Economic Analysis of Development. ( mar. 28, 2021, 6.30 pm)

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 production, strengthening of infrastructure like transport network, improved
electricity generation etc.

Economic development is defined as a sustained improvement in material well being of

society. Economic development is a wider concept than economic growth. Apart from growth
of national income, it includes changes – social, cultural, political as well as economic which
contribute to material progress. It contains changes in resource supplies, in the rate of capital
formation, in size and composition of population, in technology, skills and efficiency, in
institutional and organizational set-up. These changes fulfill the wider objectives of ensuring
more equitable income distribution, greater employment and poverty alleviation. In short,
economic development is a process consisting of a long chain of interrelated changes in
fundamental factors of supply and in the structure of demand, leading to a rise in the net
national product of a country in the long run.

The economic growth is a narrow term. It involves increase in output in quantitative terms
but economic development includes changes in qualitative terms such as social attitudes and
customs along with quantitative growth of output or national income. Economic development
without growth is almost inconceivable.2

Economic growth and development are intertwined and can be assessed from two
perspectives: the mainstream and the critical. In the mainstream approach, economic growth
and development are concerned with the unfulfilled material needs of people. Countries need
economic growth to ensure that generates enough resources to meet the needs of their
population. According to this approach, development is linear: there is a specific "path" that
countries can follow to achieve development. Of course, there are different stages that
countries must reach and exceed before achieving economic growth and development.

According to Rostow – the five development stages include the initial "traditional society," a
"take off" phase and the final "high mass consumption" stage. Originally this approach
implied that there was a possibility of unlimited economic growth and thus that all countries
could achieve equal levels of development. Later, the focus of economic growth was
transformed to sustainable economic growth.

Critical approach contends that development is about meeting the basic material needs of
people and also the non-material. Human well-being is possible by creating societies whose

2
Barro, Robert J. 1996. Determinants of Economic Growth: A Cross-Country Empirical Study. National Bureau
of Economic Research. ( mar. 28, 2021, 6.35 pm)

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social, political, economic and cultural structures empower their members. In this context,
some observers consider "development as freedom." Communities can become self-sufficient
thriving at balancing their activities with nature.3 At the same time, sound democratic
institutions allow societies to be more inclusive in terms of marginalized groups that lack
access to the community's resources. An empowered society enables its members to achieve
their potential and thus reach higher levels of prosperity as a community. Investment in
human capital, for example, is fundamental for economic growth and development.

AIMS AND OBJECTIVES –

By this project the researcher would like to study and understand the concept of economic
growth and development. The researcher also aims to understand whether only economic
growth can lead a country to development.

HYPOTHESIS –

 THE IMPACT OF HUMAN RESOURCES – the skills, education and training of the
labour force have a direct effect on the growth of an economy.
 Improvement and increased investment in physical capital will reduce the cost of
production.
 A shortage of skilled labour can be a deterrant to economic growth

RESEARCH METHODOLOGY –

This project is based mainly and heavily on written text material. It is based on the doctrinal
method of research. The segments are structured and written actively. The writing style is
descriptive as well as analytical. This project has been done after a thorough research based
upon intrinsic and extrinsic aspect of the assigned topic. The doctrinal method in this research
paper refers to various books, articles, newspaper, magazine, dictionary and political review.
In this research paper the researcher will only use Doctrinal method.

SOURCES OF DATA –

The researcher will rely upon the primary and secondary sources like books, newspaper,
websites, articles etc.

3
Uwe Sunde. 2009. Life Expectancy and Economic Growth: The Role of Demographic Transition. The Institute
for the Study of Labor ( mar. 28, 2021, 6.35pm)

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LIMITATIONS –

The researcher has certain limitations such as time as it has to be done during the period of
semester.

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 II. THE IMPACT OF HUMAN RESOURCE ON GROWTH AND
DEVELOPMENT

Skill development is an important driver to address poverty reduction by improving

employability, productivity and helping sustainable enterprise development and inclusive
growth. It facilitates a cycle of high productivity, increased employment opportunities,
income growth and development. However, this is just one factor among many affecting the
productivity whose measurement differs for individuals, enterprise and economy. The
increase in productivity could be due to availability of skilled & healthy manpower;
technological up gradation and innovative practices; and sound macroeconomic strategies.
The manifestations of improved productivity can be in the form of improvement in real gross
domestic product (economy), increased profit (enterprises) and higher wages (workers).4

The lack of access to good education and training keeps the vulnerable and the marginalized
sections into the vicious circle of low skills; low productive employment and poverty. The
marginalized group which includes rural poor, youth, persons with disabilities, migrant
workers and women constitute the highest number of poor. In India 70 per cent of the labour
force reside in rural areas and depend on low productive agricultural activity where there is
huge underemployment leading to low level of productivity. The high proportion living in
poverty among women in India is due to their concentration in low productivity work.

On the education front, the Right to Education Act, 2009 has been introduced which
legislates compulsory education up to the age of 14 years. Thereafter to prevent drop outs the
government is promoting the dual system of education from Class IX (secondary level)
onwards. Credit facility is now being made available for students who want to pursue
vocational education after completing Senior Secondary. The National Skill Qualification
Framework has been introduced to facilitate the smooth transition from general education to
vocational education and vice versa at all levels from 2014 onwards. For the labour force
already in market with lack of education and any training, Recognition of Prior Learning
introduced in 2014 to get accreditation for the skills they already possess based on which they
can go for up-skilling or re-skilling. The amendment to the Apprentices Act 1961 encourages
even the micro and small entrepreneurs to engage apprentices which would improve the
availability of skilled manpower.

4
Galihardi, R 2004, Statistics on Investment in Training, Skills Working Paper No.18 Geneva(ILO) ( mar. 29,
2021, 8.35pm)

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Under the National Skill Development Mission introduced in 2014, the skill training of the
heterogeneous labour force consisting of youth, women, school drop outs, disabled,
minorities, tribal groups is mandated.

There is need to improve the access of quality and relevant training by all including
marginalised section particularly in the rural areas to raise productivity and income and also
to link opportunities for better livelihood and employment. In the India context this is very
important as the large pool of the demographic advantage resides in the rural areas. This may
require increase in the training capacities for relevant and high-quality skills, and also require
responding to rapidly changing skills needs; upgrading informal apprenticeship systems i.e.
Apprenticeship Proatsahan Yojana so as to deliver skills and knowledge for value added
activities and more advanced technologies. The Recognition of Prior Learning needs to be
speeded up for the effective and efficient matching of workers’ skills with skills required in
the jobs to reduce the skill gap. This way equal opportunities can be created both for women
and men to access relevant /quality education, vocational training and workplace learning,
and to productive and decent work. So that they can realize their potential and contribute to
economic and social development and maintain not only their employability but also
sustainability of enterprises. However, improving access also necessitates creating system to
collect and communicate reliable and up to date information on skills needs in current labour
markets for better informed choices and career guidance.5

The current labour market data clearly indicates the low level of education of labour force
wherein about 80 per cent has education upto secondary with about 29 per cent as illiterates.
The universalisation of elementary education has improved the enrolment and the retention
up to the upper primary level. However, there is sharp dropout after that. There is need to
universalize the secondary education so that young boys and girls are prepared for working
productively in agriculture or to access alternative employment opportunities.

The school dropouts needs to be provided the second chance to acquire basic numeracy and
literacy skills to move them out of low paid unskilled work in the informal economy. There
are examples in India such as Pratham which initiated the Second Chance programme in 2011
to give dropout students, especially girls, a chance to complete their Secondary School
education and acquire the skills necessary for employment. It is a 15 month programme that
targets young girls and women between the age of 16-25 years who have dropped out of
5
Galihardi, R 2004, Statistics on Investment in Training, Skills Working Paper No.18 Geneva(ILO) ( mar. 29,
2021, 8.35pm)

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school and helps them pass their Secondary School Examination. Apart from that it also aims
to raise awareness about educating girls and women so that they can break the regressive
barriers of caste and religion. This would not only remove the barriers that girls face in going
to schools but would also improve the employability of women.

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 III. INVESTMENT IN PHYSICAL CAPITAL WILL REDUCE
COST OF PRODUCTION

Physical capital is generally defined as an asset that is used in production and which is
manufactured by humans. The latter characteristic means that it is reproducible. It may be for
example machinery, buildings or vehicles. It is different from other types of capital such as
human or financial, which is indicated by the word ―physical‖. Physical capital sometimes
refers to fixed capital, but definition will not be used in this paper. The standard definition of
physical capital thus excludes non-reproducible production factors such as land.

In general, economic growth occurs as a result of increases in the production of goods and
services. Increased consumer spending, increased international trade, and businesses that
increase their investment in capital spending can all impact the level of production of goods
and services in an economy.

For example, as consumers buy more homes, home construction and contractors see increases
in revenue. As companies invest in their businesses in order to expand their products and
services, they hire more employees and increase salaries or wages. All of this activity leads to
economic growth, which can be measured by gross domestic product (GDP)—the total
monetary or market value of all the finished goods and services produced within a country's
borders in a given period.

Without capital investment, innovation is not possible, including the discovery of new
reserves of natural resources or technological advances. Capital investment occurs when
businesses purchase capital goods, which are tangible assets such as buildings, machinery,
equipment, vehicles, and tools.6 These tangible assets are then used to produce goods or
services. Capital investment is a means for a company to further its business objectives.

Capital investments are long-term investments; they allow companies to generate revenue for
many years by adding or improving production facilities and boosting operational efficiency.
A business does not see an immediate increase in revenue when it makes investments in
capital goods.

An increase in capital investment allows for more research and development in the capital
structure. If a company wants to take new products and services to the market, they will

6
Deardorff's Glossary of International Economics. ( mar. 29, 2021, 9 .15pm)

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typically engage in research and development activities as their first step towards innovating
and introducing new products and services or improving their existing offerings.

Additional or improved capital goods is intended to increase labor productivity by making

companies more productive and efficient. Newer equipment or factories leads to more
products being produced, and at a faster rate. For example, a new production facility might
use less electricity because it uses newer equipment and is housed in a more energy-efficient
building. As a result, more products can be produced at a lower cost, and with faster
turnaround times; this can increase the company's profits.

As labor becomes more efficient, this increased efficiency nationwide leads to economic
growth for the entire country and a higher nationwide GDP.

Capital goods are not the same as financial capital or human capital. Financial capital
includes the funds necessary to sustain and grow a business, which a company secures by
issuing either debt–in the form of bonds–or equity–in the form of shares. Human capital
refers to human labor or workers. Before a company can invest in capital goods, it must first
have the resources and infrastructure set up to secure financial capital. Human capital is then
used to design, build, and operate capital goods.7

Improvements and increased investment in physical capital – such as roadways, machinery

and factories – will reduce the cost and increase the efficiency of economic output. Factories
and equipment that are modern and well-maintained are more productive than physical labor.
Higher productivity leads to increased output.

Labor becomes more productive as the ratio of capital expenditures per worker increases. An
improvement in labor productivity increases the growth rate of the economy.

7
Investiopedia.com, http://www.investopedia.com, ( mar. 29, 2021, 9.15pm)

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 IV. A SHORTAGE OF SKILLED LABOUR CAN BE
DETTERRANT TO ECONOMIC GROWTH

The development of skills can contribute to structural transformation and economic growth
by enhancing employability and labor productivity and helping countries to become more
competitive. Investment in a high-quality workforce can create a virtuous cycle, where
relevant and quality skills enable productivity growth and foreign direct investment, which
result in more and better jobs for the current workforce and more public and private
investment in the education and training system. This, in turn, increases the employability
and productivity for both the current and future workforce.

Yet, most countries continue to struggle in delivering on the promise of skills development.
There are huge gaps in basic literacy and numeracy of working-age populations, as 750
million people aged 15+ (or 18 percent of the global population) report being unable to read
and write, with estimates being nearly twice as large if literacy is measured through direct
assessments. Large-scale international assessments of adult skills generally point to skills
mismatches as well as large variation in the returns to education across fields of study,
institutions, and population groups. Employers in many developing countries report that a
lack of skilled workers is a major and increasing bottleneck for their operations, affecting
their capacity to innovate.

Most training is implemented at the State level. However, the implementation varies across
States with many demographically advantageous States facing not only shortage of physical
infrastructure but also quality training. The State Skill Development Missions (SSDMs) in
the States should evolve into a coordinating body toharmonize the skilling efforts across line
departments/private agencies/voluntary organizations etc., and also ensure that funds received
under various programmes are optimally utilised.8 The common norms for course cost
durations etc as announced at the central level needs to be adopted by the States and State-
specific guidelines for skill development programmes should be made accordingly. Further
for effective outreach and access by different segments of the population it is necessary to
have decentralized implementation at State, district and block level and also to ensure
effective coordination and monitoring of skill development initiatives. The existing pattern of
DRDA to coordinate skill efforts at district level may be considered for adoption for effective

8
Henry,C2008 Improving Skills Development in Rural Communities, Employment Sector Working Paper , ( mar.
30, 2021, 6.15pm)

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coordination and interaction with local self-government, civil society, training provider,
industry and other stakeholders. Given that State conditions and requirements vary,

it is necessary to determine sectoral priorities at State level based on sectoral assessment and
the formulation of appropriate policies to enhance the qualitative and quantitative skill
availability for the sector based on conduct of regular skill surveys. The inter-linkage of the
SSDMs with the industry, training providers, Sector Skill Councils, NSDA should be
maintained at the policy formulation and implementation level. The Sector Skill Councils
should to assist the States to align training program with NSQF. 9 If required a working group
could be constituted with SSCs representatives in this regard.

9
NITI Aayog 2015 -Report of the Sub-Group of Chief Ministers on Skill Development , ( mar. 30, 2021, 6.15pm)

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 V. CONCLUSION AND SUGGESTIONS

A good quality of population is very important in determining the level of economic growth.
So the investment in human capital in the form of educational and medical and such other
social schemes is very much desirable. Human resource development increases the
knowledge, the skills and the capabilities of the people that increase their productivity

It is now fairly recognized that education is the main vehicle of development. Greater
progress has been achieved in those countries, where education is wide spread. Education
plays an important role in human resource development, improves labor efficiency and
removes mental block to new ideas and knowledge thus contributes to economic
development.

Labor supply comes from population growth and it provides expanding market for goods and
services. Thus, more labor produces larger output which a wider market absorbs. In this
process, output, income and employment keep on rising and economic growth improves. But
the population growth should be normal. A galloping rise in population retards economic
progress. Population growth is desirable only in a under-populated country. It is, however,
unwarranted in an overpopulated country like India.

The lack of access to good education and training keeps the vulnerable and the marginalized
sections into the vicious circle of low skills; low productive employment and poverty. The
marginalized group which includes rural poor, youth, persons with disabilities, migrant
workers and women constitute the highest number of poor. In India 70 per cent of the labour
force reside in rural areas and depend on low productive agricultural activity where there is
huge underemployment leading to low level of productivity. The high proportion living in
poverty among women in India is due to their concentration in low productivity work.

Investment in a high-quality workforce can create a virtuous cycle, where relevant and
quality skills enable productivity growth and foreign direct investment, which result in more
and better jobs for the current workforce and more public and private investment in the
education and training system. This, in turn, increases the employability and productivity for
both the current and future workforce.

Changing the processes is only effective when the actual labor force is trained to work with
the new systems. Thorough and clear training is an absolute necessity for improving labor
and productivity.

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As you build processes, define them on paper and create a training manual to reflect the
changing labor roles. Use mentors, text documents and video as a reference point for each
role. Working through specific training days while encouraging questions will help
employees become productive in their roles.

If your existing processes are adequate but the labor force is failing on productivity, this also
calls for thorough training or re-training to ensure workers are performing their job functions
to the best of their abilities.

Labour market outcomes are assessed mainly using different employment/ unemployment
rates as well as elements of wages and earnings. The findings show that the higher one's level
of education, the better one's chances of getting a job and keeping the status of employed
person in times of crisis on labour market. A higher participation in education is not
necessarily associated with a higher employment rate, since the entry on the labour market
occurs for some individuals as an alternative to continuing their education.

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 BIBLIOGRAPHY

BOOKS -

 Barro, Robert J. and Xavier Sala-i-Martin, Economic Growth, McGraw-Hill, 1995.

 Jones, Charles I., Introduction to Economic Growth, New York: W.W. Norton and
Co., 2002. Second Edition.
 Romer, David, Advanced Macroeconomics, New York: McGraw-Hill, 1996.

ARTICALS -

 Rural Development through skill development ―Skills for Rural Development Policy
briefs, ILO
 Training for employment: Social inclusion, productivity and youth Employment , ILO
2000

WEBSITES –

 Investiopedia.com, http://www.investopedia.com

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