WEIGHTAGE CHART

Ch.No VSA SA LA Total

. Chapter Name Q Q Q Marks

1 Economics Growth and Economic Development 2 0 1 14

2 Demography and Human Resource Development 2 1 0 9

3 National Income and Human Resource Development 2 1 1 19

4 Planning and NITI Aayog 2 1 0 9

5 Agricultureal Sector 2 2 1 24

6 Industrial Sector 1 2 1 22

7 Tertiary Sector 2 1 0 9

8 Foreign Sector 3 1 0 11

9 Environmental Economics 2 1 0 9

10 Telangana Economy 2 2 1 24
 ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT
UNIT-1
Introduction

Every country in the world aims at achieving a multi-dimensional change in economic,

social and cultural aspects through economic development.

Hence economic development is a process; it is not an independent process, but a larger

process of social transformation.

According to Kindle Berger, economic growth means more output and economic
development implies both more output and changes in the technical and institutional
arrangements.

The word growth is primarily of quantitative significance while the word development is of
both quantitative and qualitative significance.

The aim of this unit is to explain the concepts of economic growth and development
followed by distinction between growth and development, objectives of economic
development, indicators of economic development, factors promoting and hindering
economic development, characteristics of developed countries, and also the
characteristics of developing economies with a focus on India.

ECONOMISTS
1. C.P.Kindleberger – Economic Growth and Economic Development
Charles Poor Kindleberger (October 12, 1910 – July 7, 2003) was an American economic
historian and author of over 30 books. His 1978 book Manias, Panics, and Crashes, about
speculative stock market bubbles, was reprinted in 2000 after the dot-com bubble. He is well
known for his role in developing what would become hegemonic stability theory,[1][2] arguing
that a hegemonic power was needed to maintain a stable international monetary system.

2. Michael P Todaro – Economic Growth Definition

Michael Paul Todaro (born May 14, 1942) is an American economist and a pioneer in the
field of development economics. Todaro earned a PhD in economics from Yale University in
1968 for a thesis titled The Urban Employment Problem in Less Developed Countries – An
Analysis of Demand and Supply. Todaro was Professor of Economics at New York
University for eighteen years and Senior Associate at the Population Council for thirty years.
He lived and taught in Africa for six years. He appears in Who's Who in Economics and
Economists of the Twentieth Century. He is also the author of eight books and more than fifty
professional articles.
3. Simon Kuznets – Economic Growth Definition
Simon Smith Kuznets  (April 30, 1901 – July 8, 1985) was
an American economist and statistician who received the 1971 Nobel Memorial Prize in
Economic Sciences " for his empirically founded interpretation of economic growth which has
led to new and deepened insight into the economic and social structure and process of
development." Kuznets made a decisive contribution to the transformation of economics into
an empirical science and to the formation of quantitative economic history.
4. Maddison – Economic Growth Definition
Angus Maddison (6 December 1926 – 24 April 2010) was a distinguished
British economist specialising in quantitative macroeconomic, including the measurement
and analysis of economic growth and development. Maddison lectured at several universities
over the course of his career, including the University of St. Andrews in Scotland and
Harvard University. In 1978, Maddison was appointed Historical Professor in the Faculty of
Economics at the University of Groningen(RUG). He retired in 1996 and became Emeritus
Professor. Maddison is particularly known for documenting economic performance over long
periods of time and across major countries in every continent of the world.

KEY POINTS
 Prior to Second World War, the focus was more on the problems of the western countries
only
 After the second world war, the economists started devoting their attention towards analyzing
the problems of under developed countries and formulating theories and models of
development and growth
 Every country in the world aims to achieving a Multi-dimensional change in economic, social
and cultural aspects through economic development.
 Hence economics development is a process; it is not an independent process, but a larger
process of social transformation.
 Economic growth and economic development, although, are divergent concepts, are inter
related and mutually inclusive.
 The conceptualization of economic development has reflected the relationships between
economic and Non-Economic factors in the economic development.
 The features of developed and developing countries are not altogether different but same
features with countries at different levels of development.

DEFINITIONS:
 According to Michael P. Todaro, "economic growth is a steady process by which the
productive capacity of the economy is increased overtime to bring about rising level of
nation output and income".
 According to Michael P. Todaro,"development must be conceived as a multi- dimensional
process involving major changes in social structures, popular attitudes and national
institutions as well as the acceleration of economic growth, the reduction of inequality and
the eradication of poverty.
 According to Maddison, "The raising of income levels is generally called economic growth in
rich countries and in poor ones it is called economic development".
 United Nations Development Programme (UNDP) has developed Human Development
Index (HDI) as an indicator of economic development.

KEY TERMS

1. ECONOMIC GROWTH: Increase in the goods and services in a year.

2. ECONOMIC DEVELOPMENT: Changes in social, technological and overall development
along with growth.
3. STRUCTURAL CHANGES: These Changes indicate the relative contribution by the
different sectors - primary, secondary and service sectors to GDP and employment.
 4. SELF-RELIANCE: Self-reliance implies that a country generates sufficient surplus to buy
what it needs. It does not depend upon other countries for the resources of funds needed to
acquire them. Self-reliance allows imports.
5. SUSTAINABLE DEVELOPMENT: Meeting the needs of the present generation without
compromising the needs of future generations.
6. INCLUSIVE GROWTH : It means the inclusiveness of the hitherto excluded population in
the growth process.
7. PQLI: This is a non-income indicator of economic development which uses life expectancy,
infant mortality and literacy for measuring economic development.
8. HUMAN DEVELOPMENT INDEX (HDI) HDI is used to measure a country's overall
achievement in its social and economic dimensions by using life expectancy at birth, adult
literacy and combined enrolment ratio and real GDP per capita based on purchasing power
parity.
9. GENEDER EMPOWERMENT MEASURE (GEM) The GEM is a composite indicator
which captures gender inequality in three areas political participation, economic participation
and power over economic resources.
10. CAPITAL FORMATION: Capital formation refers to net additions of capital stock such as
equipment, buildings and other intermediate goods. A nation uses capital to stock in
combination with labour provide services and to produce goods; an increase in this capital
stock is known as capital formation.
11. INCREMENTAL CAPITAL OUTPUT RATIO (ICOR): The ICOR is usually expressed
as a relationship between additional investment and additional output.
12. MARKETABLE SURPLUS: It refers to the excess of agricultural output over and above
what is required for the subsistence living of the rural population.

Question and Answers

LONG ANSWER QUESTIONS
1.Explain the concepts of economic growth and development. What are their
differences?
A) Concepts of Economic Growth:
'The term 'Economic Growth' refers to an increase in a country's real level of national output or an
increase in the value of goods and services produced by every sector of the economy. Economic
growth can be measured by an increase in a country's Gross Domestic Product (GDP). The term
economic growth thus, is a narrower concept, as it explains about increase in output only.
According to Michael P. Todaro, "Economic growth is a steady process by which the
productive capacity of the country is increased over time to bring about rising levels of national
output and income."
According to Simon Kuznets "Economic growth may be defined as a long term process
wherein the substantial and sustained rise in real national income, total population and real per
capita income takes place."
Thus, economic growth refers to a sustained increase in country's output of goods and
services or more precisely product per capita
B) Concept of Economic Development:
Economic development is a wider concept than economic growth. It includes not only economic
growth but also it includes the progressive changes in the socio-economic structure of a country,
where a sustained rise in living standards as well as an equitable growth to be achieved.
According to United Nations Expert Committee, "development concerns with not only
man's material needs, but also the improvement of the social conditions of life. Therefore,
development is not only economic growth, but also growth plus changes social, cultural and
institutional as well as economic."
 According to Michael P. Todaro, "development must be conceived as a multi- dimensional
process involving major changes in social structure popular attitudes and national institutions as
well as the acceleration of economic growth, thee eradication of poverty and reduction of inequality
of wealth."

The distinction between economic growth and development is presented below:

Economic Growth Economic Development

Economic development refers not only to economic

Economic growth refers to an increase in a country’s
growth but also about progressive changes in the
real output of goods and services.
socio-economic structure of a country.

Economic growth is a single dimensional Economic development is multi-dimensional

phenomenon phenomenon.

Economic growth explains primarily about Economic development explains qualitative as well as
quantitative changes in the economy. quantitative changes in the economy.

Economic growth occurs when the volume of goods In the initial stages of development, government
and services produced in a year increases in sustained intervention is desirable in view of low level of
manner over time, either through active role of output in the country and hence an active role is
government or not. paramount importance for ushering in development.

Faster economic growth occurs when more A higher level of economic development entails
technological p, ogress occurs. improvement in the quality of life of the people.

Economic growth is the key issue under traditional

economics. According to this approach “take care of Economic development is the main issue under
growth, and poverty would be eliminated modern economics literature. Accordingly, “take care
automatically. “This is called as the trickle down of poverty, and growth would take care of itself.”
approach.

Scope of economic development is wide and

The scope of economic growth is narrow because it is
comprehensive than economic growth. Its link is not
concerned with changes in per capita income level
only with an increase in income but also with the well
only.
being of the society and economy.

Economic growth is considered as short-term process Economic development is a long-term process that
where we can measure income changes on an yearly spans about 20 to 25 years, as it takes more years to
basis. So, its time span may be one year change social, economic and institutional set-up.
Economic growth is a more relevant concept in the Economic development is the main issue of
case of developed countries of the world developing countries.

Social changes, in case of economic development, are

There may or may not be any social change in case of
compulsory. It refers to the better jobs, availability of
economic growth. It is only concerned with change in
food, better health and education and sustained
income level without giving due consideration to
increase in living standards where environmental
social change.
issues are also given a due consideration.

Economic growth is measured only by comparing Measurement of economic development is based on

income levels of different years. It is usually the computation of composite indices where
measured numerically by comparing the rate of reduction in poverty, development of human beings
economic growth for every year. and living standards play an important role.

2. Explain the objectives of economic development.

The Economic development refers to the economic growth and also about progressive
changes in the socio economic structure of a country.

The objectives of economic development for developing countries like India are
explained below:
1. A high rate of growth with a view to bring about and improvement in the standard of
living
2. Economic self-reliance
3. Social Justice
4. Modernization
5. Economic Stability
6. Sustainable Development
7. Inclusive Growth

1) High rate of economic growth:

All the developing countries are working hard to achieve high rates of economic growth. For
example, the Indian five year plans have given primary importance to a higher rate of growth
of real national income.

2) Economic self-reliance:
Dependence on foreign aid should be as minimum as possible. Nowadays most of the
developing countries are aiming to achieve self-reliance, by developing themselves
economically.

3) Social Justice:
Another important objective of economic development to ensure economic and social justice
and to take care of the poor and weaker sections of society and removal of regional
imbalances.
4) Modernization:
Modernization of the economy by changing the structural and institutional setup is also the
objective of economic development.

5) Economic stability:
Achieving non-inflationary, self-reliant growth with social justice is a broad objective of
economic development. Economic stability can be achieved when a non-inflationary full
employment growth occurs in the country. The Indian planners tried to stabilize the economy
by properly controlling trend of price level. But, there is no satisfactory progress in this
regard.

6) Sustainable Development:
Sustainable development is “Meeting the needs of the present generation without
compromising the needs of future generation”. The main aim of sustainable development is to
increase the economic development with the aim of conserving and enhancing the stock of
environmental, human and physical capital, so that future generations can meet their own
needs. The adverse effects of economic development on environmental degradation can be
decreased by the proper selection of economic and environmental policies and environmental
investments i.e., the selection of those policies and investments must aim at harmonising the
economic development with sustainable development.

7) Inclusive Growth:
The term inclusive growth refers to both the pace and the pattern of economic growth. As a
strategy of economic development, inclusive growth concept, received attention owing to a
rising concern that the benefits of economic growth have not been equitably shared. The
inclusive growth stresses the inclusiveness of the either to excluded population in the growth
process, which is expected to bring in several other benefits as well as to the economy.

3.Examine the indicators of economic development.

Ans.
The economic development indicators are explained below.
1. National Income
2. Per Capita Income
3. Real National Income
4. Physical Quality of Life Index(PQLI)
5. Human Development Index
6. Gender related Development Indicator (GDI):
7. Gender Empowerment Measure (GEM):
8. The Social Progress Index (SPI):
9. Multi-dimensional Poverty Index (MPI)
10. Economic Growth
11. Gross National Happiness Index

1) National Income:
The first measuring mode of economic development is the national income. The higher the
national income, the higher is the index of economic development and vice versa.
2) Per Capita Income:
Some economists took per capita income as an indicator of economic development. By
dividing National Income with the population of the country, we get per capita income. An
increase in per capita income of any country shows an increase in economic growth rate of
the country, rather than economic development, as economic development also includes
changes in the socio-economic structure of the country.

3) Real National Income:

Economic development can be measured based on the increase in economy’s real national
income by considering long duration. On the basis of real national income, global economy is
divided into developed and developing countries

4) Physical Quality of Life Index (PQL):

This is a non-income indicator of economic development. This indicator of economic

development in based on

(a) Life expectancy

(b) Infant mortality rate, and
(c) Literacy rate. In any country, if the PQLI is increasing, then it indicates the increase in the
PQLI of people. It is better indicator than per capita income.

5) Human Development index (HDI):

This a modern indicator of economic development. The HDI is a statistical tool used to
measure the overall achievement of a country in its social and economic dimensions. The
factors required to construct HDI are
A) Income for better living,
B) Education and
C) Life expectancy for the construction of HDI, fixed maximum and minimum values have
been established for each of these indicators. Life expectancy at birth (25 and 85years).
Adult literacy rate age 15 and above (0 to 100 per cent). Combined enrolment ratio (0 to 100
per cent). Real GDP per capita PPP ($100 and 40,000).

6) Gender related Development Indicator (GDI):

The indicator measures the average achievement of population in the same dimension as the
HDI while adjusting for gender inequalities in the level of achievement in the three basic
aspects of human development i.e., Income for better living, education and life expectancy.

7) Gender Empowerment Measure (GEM):

It is a composite indicator that measures gender inequality in

a) Political participation and decision making as measured by men's and women’s
participation and their share of parliamentary seats.
b) Economic participation and decision making power, as measured by two indicators -men
and women's percentage shares of positions as legislators, senior officials and managers,
professional and technical position.
c) Power over economic resources, as measured by men's and women's estimated earned
income.

8) The Social Progress Index (SPI):

The SPl measures the extent to which countries provide for the social and environmental
needs of their citizens. The SPI measures the well being of a society by observing social and
environmental outcomes directly than the economic factors. The social and environmental
factors include wellness (including health, shelter and sanitation), equality, inclusion,
sustainability and personal freedom and safety. This SPI is based on the writings of Amartya
Sen, Douglass North and Joseph Stiglitz.

9) Multi-dimensional Poverty Index (MPI):

The MPI is an attempt made to illustrate the many deprivations faced by the most severely
disadvantaged. A person is multi dimensionally poor if the weighted indicators in which he or
she is deprived add upto at least 33 per cent.

10) Economic Growth:

It measures the annual increase in GDP, GNP and GDP per capita as an indicator of
economic development.

11). Gross National Happiness Index:

Economics development is measured by the gross national happiness index in bhutan. Thus, the
current methods of development measures can be modified.

4. Explain factors hindering economic development.

The important factors hindering/obstructing the economic development
1. Inadequate Natural Resources
2. Lower Growth Rate of human Capital
3. Poor Infrastructure
4. Vicious Circle of Poverty
5. Low Rate of Capital formation
6. Socio-Cultural Formation
7. Agricultural Constraint
8. Foreign Exchange Constraints

A) Inadequate Natural Resources:

The economic growth of a country' is limited by Inadequate Natural Resources such as fertile
land, inefficient labour, scarcity of capital, low level of technology, etc. Thus, natural
resources are of the most dominant factor in pursuing growth and development. But countries
like Singapore, Japan, etc. which have no inadequate natural resources are successful in the
pursuit of the objective of economic development.
1) However, mere availability of natural resources in a country may not help its development.
The available resources should be tapped optimally. Then only the country developed
economically.
2) In developing countries like India, the management of resources is also inefficient due to
the absence of competition, awarding the contracts of projects to people belonging to political
patronage, etc.

B) Lower Growth Rate of Human Capital:

Developing countries like India are allocating less amounts on education, health, sanitation
and research programmes in their budgets. So, the rate of growth of human capital is slow
and poor.

C) Lack of Infrastructure:
Infrastructural facilities in many developing countries are far left behind. Nothing much has
been done to improve the transportation, telecommunication. generation of electricity, supply
of water both for agriculture and industrial purposes education, medical and health facilities.
Development of infrastructural facilities both economic and social is a prerequisite condition
for economic development.

D) Vicious circles of poverty:

Many developing economies are caught up in the vicious circle of poverty, which is an
important bottleneck in the process of their economic development. A vicious circle of
poverty is given below.

In an under developed economy, poverty leads to low to income which in turn leads low level
of savings and capital. It leads to low investment and deficiency of causing low capital
productivity.

Low productivity causes low level of circle of income. This vicious poverty hinders the
economic development process in a developing economy.

Some institutional and social factors like joint family system, attitudes of people towards
family planning, superstitions belief in karma theory, etc., are also come in the way of
economic development of developing economies.

E) Low Rate of Capital formation:

Lack of capital is the main drawback of economic development. Poverty is one of the major
cause for low rate of capital formation. In low developed countries, most of the people are
poor, illiterate and not skilled. As a result, their marginal productivity becomes low and it in
turn results in low real income, low savings, low investment and low rate of capital
formation.
F). Socio-Cultural Constraints:
Some of the socio-constraints which are slowing down the growth in underdeveloped
countries are as follows,
1. Social institutions and attitudes
2. Traditional beliefs and values
3. Nepotism
4. Inefficient and bad administration
5. Social attitude towards education
6. High value for leisure.

G). Agricultural Constraint:

Most of the developing countries are majorly agricultural. In those developing countries,
agriculture creates high share in their GDP. Agriculture also provides employment
opportunities. Some of the agricultural constraints are as follows,
1. Technology used by the farmers
2. Planning of irrigation
3. Climate
4. Cost of agricultural products
Because of these constraints, agricultural sector is not fulfilling the demands of developing
economy. The low yield of agriculture is an important challenge in the economy
development.

H). Foreign Exchange Constraint

The foreign exchange constraint is the result of dis equalising forces in the world economy.
Due to this, the exports of underdeveloped countries arise, but it does not contributed for the
economic development because it neglected the other sector while progressing. As this sector
is only dependent on exports, international fluctuations occurred in the means of demand for
and prices of their products or goods. The business conditions of export sector cannot be
developed by increasing the staff and not also by high yielding output due to the drawbacks
of market and lack of capital.

5.Analyze critically the characteristics of developing economies with special reference to

India. Mar 2019, 18, 17AMay 2017

The important characteristics of developing economies in general and the Indian economy in
particular are explained below

1. Low Level Per capita Income:

2. Predominance of Agriculture:
3. Capital Deficiency:
4. Technological Backwardness:
5. Inadequate Infrastructure facilities:
6. High Rate of Population on Growth:
7. High Illiteracy Rate:
8. Infant Mortality Rate:
9. Joint Family System
10. Tradition Bound Attitudes Towards Work and Life:

1) Low Level Per capita Income:

The per capita income level of the developing economies is very low and so the standard of
living of the people is also low. Most people are ill-fed, ill-clothed, ill-housed and ill-
educated. For e.g. in 2013, the per capita GNI of India was $5350 and China$ 11,850. Among
the 133 countries of the world, India's rank is l10. It is estimated that in India, about 33 per
cent of population is living below the poverty line. Thus, there is mass poverty in India.
2) Predominance of Agriculture: About two third of India's work force is engaged in
agriculture for employment. The contribution of agriculture to our national income is about
20%. The technology used in agriculture is traditional in nature. Still most areas depend on
monsoons for water. Though in some areas, modern techniques of cultivation are used, still
the vast agricultural area uses primitive methods of cultivation. A majority area of agriculture
land is still, not covered by irrigational facilities.
3) Capital Deficiency:
Low per capita income results in low savings and it leads to low capital formation and
scarcity of capital. Because of capital scarcity, the available resources like labour and natural
resources remain unutilized. India has rich natural resources. But is not able to utilize them
fully for want of capital.
4) Technological Backwardness:
In developing economies like India, the technology used is backward. The expenditure made
on Research & Development is low. Advanced technology is used in a few industries only.
5) Inadequate Infrastructure facilities:
In India, infrastructural facilities such as transport, communications, electricity, irrigation,
educational, health, medical, etc. are not well developed. This affects the pace of economic
development of India.
6) High Rate of Population on Growth:
India has a very large population of 121.5 crores as per 201l population census. In India the
rate of growth of population is also high (1.85 per cent). The rate of growth of per capita
income is less than the rate of growth of national income because of high rate of growth of
population. So, the country remains poor and economically backward.
7) High Illiteracy Rate:
Though the illiteracy rate in India declined since 1951, it is still high. As per 2011 census,
still more than 30 per cent of population is illiterate in India. illiteracy among females is
much higher than males.
8) Infant Mortality Rate:
The number of deaths of infants of less than one year of age per thousand live births in India
is high.
9) Joint Family System
The joint family system obstructs mobility of labour. It discourages family planning and
savings and risk taking. In the joint
10) Tradition Bound Attitudes Towards Work and Life:
The Indian society is divided into many castes, sub-castes resulting in frictions In the society.
The religious and social beliefs, customs and traditions inhibit the development of scientific
thinking and attitudes towards the work and life.
In spite of the structural constraints, the Indian economy is experiencing a socio-economic
change. The per capita income is increasing but at a slow rate. Infrastructural facilities are
being improved. In fact, there is development in almost all sectors. But, the rate of
development is relatively slow because of high growth rate of population. But after the
introduction of 'New Economic Reforms' in 1990, the process of development is slowly
picking up.

6.Discuss the Characteristics of Developed Economies

Economic aspects of developed economies refer to a high level of economic growth, per
capita income, gross domestic product, standard of living, consumption output. On the other
side, non-economic factors like life expectancy, literacy rate, low birth rate, low death rate,
low infant mortality rate, low maternity mortality rate and other social factors play a major
role of the country’s economic growth.

Based on its GNI per capita, every economy is classified as low income, middle income
(subdivided into lower-middle and upper-middle), or high income. Income classfications are
set each year on July

1.These official analytical classifications are fixed during the World Bank’s fiscal year
(ending on June 30). According to World Bank Report (2014) entitled “Risk and Opportunity
Managing Risk for Development”, the world economies have been divided into four types
based on per capita GNI $ (dollar) value i.e.,

i) Low Income Economy – US$ 1035 or less than it

ii) Low Middle Income Economy – USS 1036 – US$ 4085

iii) Upper Middle Income Economy – US$ 4086 – US$ 12615

iv) High Income Economy – US$ 12616 and more

A developed economy is characterized by an increase in capital resources, improvement in

efficiency of labour, better organization of production in all spheres, development of means
of transport and communication, growth of banks and other financial institutions,
urbanization and a rise in the level of living, improvement in the standards of education and
expectation of life, greater leisure and more recreation facilities and the widening of the
mental horizon of the people, and so on.

The main characteristics of developed countries are as follows:

i) Significance of Industrial Sector.

ii) High Rate of Capital Formation.

iii) Use of High Production Techniques and Skills.

iv) Low Growth of Population.

v) Per Capita Gross National Income.

Significance of Industrial Sector

Most of the developed countries in the world have given much importance to the
development of industrial sector.

They have large capacities to utilize all resources of production, to maximize national income
and to provide employment for the jobless people.

As per the sectoral contribution to national income these countries receive the major portion
of their national income from the non-agriculture sectors which include industry, trade,
transport, communications and other services.

For instance, the U.K. generally receives nearly 50% of her national income from industrial
sector 21% from transport and commerce,  4% from agriculture and  25% from other sectors.
The same is the case with the U.S.A., Japan and other west European countries.

But in India and other developing countries, agriculture contributes 18 per cent to their
national income.

All highly developed economies have three fourths of their national income emanating from
the service sector, while it is relatively lesser in developing countries.

High Rate of Capital Formation

Developed countries are generally very rich, as they maintain a high level of savings and
investment, with the result that they have huge amount of capital stocks. The rate of
investment constitutes 20 to 25 percent of the total national income.

Rate of Capital Formation. Besides this, well-developed capital markets, high level of
savings, broader business prospects as well as innovative entrepreneurship have led to a high
growth of capital formation in these economies.

Use of Modern Production Techniques and Skills

Modern production techniques and skills have become an essential part of economic
development process in the developed countries.

The new and advanced techniques have been used for the exploitation of the physical human
resources.
These countries have, therefore, been giving priority to the scientific research, so as to
improve and evolve the new techniques of production.

Consequently, these countries find themselves able to produce goods and services of a better
quality at a comparatively lesser cost. It is because of the use of modern and mass production
techniques of production.

Consequently, these countries find themselves able to produce goods and services of a better
quality at a comparatively lesser cost. It is because of the use of modern and mass production
techniques and latest skills, that the countries like Japan, Germany and Israel could have
developed their economies very rapidly, though they have limited natural resources.

Low Growth of Population

The developed countries, like the U.S.A., the U.K. and other western European countries
have low growth of population because they have low level of birth rate followed by low
level of death rate.

Good health conditions, high degree of education and high level of consumption of the
people have led to maintain low growth of population followed by low level of birth and
death rates. The life expectancy in these countries is also very high. The high rate of capital
formation on the one hand and low growth of population on the other have resulted in high
level of per capita income and prosperity in these countries.

Consequently, the people in these countries enjoy a higher standard of living and work
together unitedly for more rapid economic and industrial development of the nations.

Besides this, the entire society, its structure and values are found to be dedicated to the goal
of rapid economic and industrial development.

Further dignity of labour is maintained. The economic motive and strong desire to lead a
better social life always inspire people to contribute greatly to the process of development.

Q5. Explain the factors promoting economic development.

There are two factors which promote the economic development of a country and are as
follows
1. Economic factors,
2 Non-economic factors
Economic Factors:
Economic factors play a crucial role in economic development of country. At a specific point
of time, the stock of capital and rate of capital accumulation estimates the growth rate of
country. The economic factors which influence the economic development are follows, are a
1. Capital Formation & ICOR
 2. Natural Resources
3. Agrarian Structure
4. Marketable Surplus of Agriculture also in Short
5. Industrial Structure
6. Structural changes
7. Organisation
8. Technological progress
9. Division of labour
10. Foreign trade
11. Economic system

Capital Formation: Capital formation can be resulted if the capital stock increases with the
course of time. If a country wants to develop economically, it has to accumulate the capital
by saving its income, with the objective of raising level of investments or it can attract
foreign investments. No country can achieve economic development, if it has low amount of
capital.
Incremental Capltal-Output Ratio (ICOR): It is the amount of capital needed additionally
to generate more output.
Natural Resources: Natural resources are the major factors for the economic growth of a
country. Plenty of natural resources like land, quality of soil, forest wealth, good river
system, minerals, oils, good climate, eco system, water and sea resources are necessary for
the economic growth of a country. Ifa country has inadequate natural resources, then it cannot
develop rapidly.
According to W.A Lewis, "Other things being equal, men can make better use of rich
resources than they can of poor". Modernised technology and increase in knowledge can
develop the
natural resources".
Agrarian Structure: In agrarian system, ownership of land is more important than
cultivation methods because economic development is dependent on land. For a faster
agricultural growth of economy, following factors are essential,
(a) Land reforms
(b) Modernization of agriculture by incorporating technological changes
(c) Marketing
(d) Capital

Marketable Surplus of Agriculture: Increase in production of agriculture along with

increase in productivity is more important for the economic development of a country.
Marketable surplus of agriculture i.e., excess of output in the agricultural area is more
essential. It is the indicator for progress in agricultural sector.

The rise in agricultural production can increase the income in agricultural sector. This in turn
increases the rural demand for consumer goods and agricultural inputs and this can lead to the
growth of industrial sector.
Industrial Structure: The industrial structure is demanding to raise the importance level of
large scale, small scale and cottage industries and the technology what they are using in the
industries. The advancement in the industries by adopting the latest technologies can lead to
the economic development of a country.
Structural Changes: Structural changes involve transformation of traditional agricultural
society to a modernised industrial society; which involves major changes in the existing
institutions, social attitudes and motivations. These all transformations can result in the
increase in employment opportunities, increase in labour productivity, increase in capital and
technological improvement.
Organisation: Organisation is one of the significant factors for the economic development.
Entrepreneurial activities like task of an organiser, undertaking risks and business
uncertainties develop the economy. Thus, less developed countries need to increase the
entrepreneurship activities by arranging all the social, economic and technological
institutions.
Technological Progress: Technological changes increase labour productivity, capital and
other production factors. The highest percentage of national income must be invested on
Research and Development for the technological development.
Schumpeter and Kuznets opined that innovation is the most significant factor for the
economic development.
Division of Labour: Adam Smith gave much significance to the division of labour in the
development of economy. Because, specialisation and division of labour increases the
productivity and it in turn increases the rate of economic development. The division of labour
is done on the basis of market size. The development of less developed countries can be
accelerated by increasing the market size through incorporating modernized transport and
communications.
Foreign Trade: Developing countries, apart from becoming self-reliant, they should also
involve in foreign trade, to develop their industries to high level. Foreign trade helps the
countries to establish the industries within short time.
Economic System The economic system of a country is also an important factor for the
Economic development. Previously, though a country has faced laissez faire economy, it has
achieved economic growth without any difficulty. But, in present situation of world, a
country is facing difficulty to achieve growth in the econom

Non-Economic Factors:
Similar to economic factors, non-economic factors are also important for the growth of
economy. They are enlisted as follows,
(i) Human resources
(i) Political and administrative factors
(ii) Social factors
Human Resources: The resources like skills, efficiency that are available through human are
referred as human resources. In a country, if labour is efficient and skilled, then it can
contribute more towards the country growth. So, human resources are crucial in the
development of a country.
The spread of education is also significant factor for the growth of human resources because
through educated and trained labour, economic development increases rapidly along with
efficiency.
Political and Administrative Factors: The political and administrative factors help the
countries to develop economically like in Britain, Germany, the United States, Japan and
France. Where as, Italy has not developed as like other states due to the political violations,
unprincipled and weak administration. In less developed countries, development of strong
administration and stable political environment will achieve the economic growth.
Social Factors: The factors like social attitudes, values and institutions are very important in
the economic development. In less developed countries, social institutions are not helpful for
the economic growth because people in those countries are more influenced by the customs,
traditions and other beliefs. Joint family, religious ideologies and caste system obstructs the
development in less developed countries.
The participation of citizens in large quantity in development activities indicates the
acceleration in growth process. People show interest only when they feel that, the result of
growth will be fairly distributed.

SHORT ANSWER QUESTIONS

1. Define economic growth and write its essential aspects.

A) Economic growth - Definition:

The term 'Economic Growth' refers to an increase in a country's real level of national output
or an increase in the value of goods and services produced by every sector of the economy.
Economic growth can be measured by an increase in a country's Gross Domestic Product
(GDP). The term economic growth thus, is a narrower concept, as it explains about increase
in output only.
According to Michael P. Todaro, "Economic growth is a steady process by which the
productive capacity of the country is increased over time to bring about rising levels of
national output and income."
According to Simon Kuznets "Economic growth may be defined as a long term process
wherein the substantial and sustained rise in real national income, total population and
real per capita income takes place."
Thus, economic growth refers to a sustained increase in country's output of goods and
services of more precisely product per capita.
Essential aspects of Economic Growth:
The essential features of economic growth are:
1) Economic growth shows a higher rate of increase in the real per capita income than the
rate of growth of population.
2) Economic growth is always linked with a large increase in productive ability of the
economy. In the short-run, economic growth is measured with the help of
(1) rate of savings of the economy:
(2) capital-output ratio, and in the long run, it is measured with
(3) rate of growth of labour force and
(4) rate of growth of technological progress.

2. Explain the Structural Changes in Economic Development

Structural Changes in Economic Development

There is a change in the occupational structure. In economic development there is a decrease

in the share of labour force in primary sector (farming, fishing etc.) and an increase in the
share of labour force in secondary sector (industry and mining etc).

1. There is a change in the structure of national output. The contribution of primary    sector
in the national output falls and the shares of secondary and tertiary (3rd) sectors slowly go up.

2. There is a change in the structure of industrial production. There is an increase in the

production of capital goods vis-à-vis the production of consumer goods.

3. There is a change in the structure of foregin trade. The share of primary goods in exports
decreases and the share of capital goods in imports increases.

Accordingly, in economic development there is an increase in exports of manufactured and

final goods as well as services.

Similarly, there is a decrease in the imports of consumer items. In present context of

globalization, the developing countries are also actively participating in world agricultural
trade, where agricultural exports are being given importance, besides limiting the importation
of consumer items. Though this cannot be considered as a reversal of the earlier trend in all
the developing countries.

4. There is a change in the structure of technology. In economic development, modern and

advanced techniques of production are used in all the sectors of economy.

5. There is a change in the social and institutional sectors. Due to economic development
there is an increase in the self-esteem and living standards of the population.

3. Distinguish Between Economic Development and Economic Growth.

Economic Growth Economic Development

 Economic development refers not only to economic
Economic growth refers to an increase in a country’s
growth but also about progressive changes in the
real output of goods and services.
socio-economic structure of a country.

Economic growth is a single dimensional Economic development is multi-dimensional

phenomenon phenomenon.

Economic growth explains primarily about Economic development explains qualitative as well as
quantitative changes in the economy. quantitative changes in the economy.

Economic growth occurs when the volume of goods In the initial stages of development, government
and services produced in a year increases in sustained intervention is desirable in view of low level of
manner over time, either through active role of output in the country and hence an active role is
government or not. paramount importance for ushering in development.

Faster economic growth occurs when more A higher level of economic development entails
technological p, ogress occurs. improvement in the quality of life of the people.

Economic growth is the key issue under traditional

economics. According to this approach “take care of Economic development is the main issue under
growth, and poverty would be eliminated modern economics literature. Accordingly, “take care
automatically. “This is called as the trickle down of poverty, and growth would take care of itself.”
approach.

Scope of economic development is wide and

The scope of economic growth is narrow because it is
comprehensive than economic growth. Its link is not
concerned with changes in per capita income level
only with an increase in income but also with the well
only.
being of the society and economy.

Economic growth is considered as short-term process Economic development is a long-term process that
where we can measure income changes on an yearly spans about 20 to 25 years, as it takes more years to
basis. So, its time span may be one year change social, economic and institutional set-up.

Economic growth is a more relevant concept in the Economic development is the main issue of
case of developed countries of the world developing countries.
 Social changes, in case of economic development, are
There may or may not be any social change in case of
compulsory. It refers to the better jobs, availability of
economic growth. It is only concerned with change in
food, better health and education and sustained
income level without giving due consideration to
increase in living standards where environmental
social change.
issues are also given a due consideration.

Economic growth is measured only by comparing Measurement of economic development is based on

income levels of different years. It is usually the computation of composite indices where
measured numerically by comparing the rate of reduction in poverty, development of human beings
economic growth for every year. and living standards play an important role.

4.Explain the Economic Factors Promoting Economic Development

Capital Formation: Capital formation can be resulted if the capital stock increases with the
course of time. If a country wants to develop economically, it has to accumulate the capital
by saving its income, with the objective of raising level of investments or it can attract
foreign investments. No country can achieve economic development, if it has low amount of
capital.
Incremental Capltal-Output Ratio (ICOR): It is the amount of capital needed additionally
to generate more output.
Natural Resources: Natural resources are the major factors for the economic growth of a
country. Plenty of natural resources like land, quality of soil, forest wealth, good river
system, minerals, oils, good climate, eco system, water and sea resources are necessary for
the economic growth of a country. Ifa country has inadequate natural resources, then it cannot
develop rapidly.
According to W.A Lewis, "Other things being equal, men can make better use of rich
resources than they can of poor". Modernised technology and increase in knowledge can
develop the
natural resources".
Agrarian Structure: In agrarian system, ownership of land is more important than
cultivation methods because economic development is dependent on land. For a faster
agricultural growth of economy, following factors are essential,
(a) Land reforms
(b) Modernization of agriculture by incorporating technological changes
(c) Marketing
(d) Capital

Marketable Surplus of Agriculture: Increase in production of agriculture along with

increase in productivity is more important for the economic development of a country.
Marketable surplus of agriculture i.e., excess of output in the agricultural area is more
essential. It is the indicator for progress in agricultural sector.
The rise in agricultural production can increase the income in agricultural sector. This in turn
increases the rural demand for consumer goods and agricultural inputs and this can lead to the
growth of industrial sector.

Industrial Structure: The industrial structure is demanding to raise the importance level of
large scale, small scale and cottage industries and the technology what they are using in the
industries. The advancement in the industries by adopting the latest technologies can lead to
the economic development of a country.
Structural Changes: Structural changes involve transformation of traditional agricultural
society to a modernised industrial society; which involves major changes in the existing
institutions, social attitudes and motivations. These all transformations can result in the
increase in employment opportunities, increase in labour productivity, increase in capital and
technological improvement.
Organisation: Organisation is one of the significant factors for the economic development.
Entrepreneurial activities like task of an organiser, undertaking risks and business
uncertainties develop the economy. Thus, less developed countries need to increase the
entrepreneurship activities by arranging all the social, economic and technological
institutions.
Technological Progress: Technological changes increase labour productivity, capital and
other production factors. The highest percentage of national income must be invested on
Research and Development for the technological development.
Schumpeter and Kuznets opined that innovation is the most significant factor for the
economic development.
Division of Labour: Adam Smith gave much significance to the division of labour in the
development of economy. Because, specialisation and division of labour increases the
productivity and it in turn increases the rate of economic development. The division of labour
is done on the basis of market size. The development of less developed countries can be
accelerated by increasing the market size through incorporating modernized transport and
communications.
Foreign Trade: Developing countries, apart from becoming self-reliant, they should also
involve in foreign trade, to develop their industries to high level. Foreign trade helps the
countries to establish the industries within short time.
Economic System The economic system of a country is also an important factor for the
Economic development. Previously, though a country has faced laissez faire economy, it has
achieved economic growth without any difficulty. But, in present situation of world, a
country is facing difficulty to achieve growth in the econom

Explain the non-economic factors promoting economic development

Non-Economic Factors:
Similar to economic factors, non-economic factors are also important for the growth of
economy. They are enlisted as follows,
(i) Human resources
(i) Political and administrative factors
(ii) Social factors
Human Resources: The resources like skills, efficiency that are available through human are
referred as human resources. In a country, if labour is efficient and skilled, then it can
contribute more towards the country growth. So, human resources are crucial in the
development of a country.
The spread of education is also significant factor for the growth of human resources because
through educated and trained labour, economic development increases rapidly along with
efficiency.
Political and Administrative Factors: The political and administrative factors help the
countries to develop economically like in Britain, Germany, the United States, Japan and
France. Where as, Italy has not developed as like other states due to the political violations,
unprincipled and weak administration. In less developed countries, development of strong
administration and stable political environment will achieve the economic growth.
Social Factors: The factors like social attitudes, values and institutions are very important in
the economic development. In less developed countries, social institutions are not helpful for
the economic growth because people in those countries are more influenced by the customs,
traditions and other beliefs. Joint family, religious ideologies and caste system obstructs the
development in less developed countries.
The participation of citizens in large quantity in development activities indicates the
acceleration in growth process. People show interest only when they feel that, the result of
growth will be fairly distributed.

VERY SHORT ANSWER QUESTIONS

1. Economic Growth May, March 2017
Ans: The term economic growth refers to an increase in the production of goods and
services in a country during a year. This concept is more relevant in developed economies.
2. Economic development
Ans: Economic Development refers not only to increase in the production of goods and
services i.e. economic growth, but also about progressive changes in the socio-economic
structure of a country. This concept is the main issue of the developing economies.
3. Social Progress Index (SP)
Ans: The SPI measures the extent to which countries provide for the social and
environmental needs of their citizens. Fifty four indicators in the areas of basic human needs,
foundations of well being and opportunity to progress show the relative performance of
nation. This index is based on the writings of Amartya Sen, Douglas North and Joseph
Stiglitz.
4. Human capital
Ans: The investment on human beings i.e., investment on education, health care, medical
facilities, nutritive food, tracing, etc., improves the skill and productivity is called human
capital.
5. Natural Resources
Ans: The resources given by the Nature are called Natural Resources. Land area, quality of
soil, forest wealth, mineral wealth, rivers, oceans, mountains, oil reserves, climate eco-
system, etc., are Natural Resources. Rich natural resources help quick development of a
country.
6. Human Resources
Ans: Human Resources are considered as a very important factor in economic development
human resources provide labour. If labourers in a country are efficient and skillful, the
country can achieve a high rate of economic growth.
7. Self reliance
Ans: Self-reliance means to stand on one's own legs. It implies that the dependence on
foreign | aid and technology should be as minimum as possible. Excessive dependence on
foreign aid may lead to economic colonialism.
8. Inclusive"Growth
Ans: Inclusive growth means the inclusiveness of the hitherto excluded sections of the
Society in the economic growth process. Inclusive growth is an important objective of the
12th Five Year Plan.
9. Physical Quality of Life Index (PQL) March-
2019
Ans: It is anon-income indicator of economic developmwhich uses life expectancy, infant
mortality and literacy for measuring economic development.
10. Human Development Index (HDI)
Ans: HDI is a modern indicator of economic development. It is a statistical tool used to
measure a country's overall achievement in its social and economic dimensions. The
following factors are considered to construct HDI.
a) Income for better living b) Education/Literacy rate
c) Life expectancy
The concept HDI was propounded by Prof. Mahaboob-ul-Haq.

11. Gender Related Development Indicator (GD)

Ans: The GDI is a composite indicator which measures the average achievement of
population in the same dimensions as the Human Development Index while adjusting for
inequalities in the level of achievement gender in the three basic
It uses the same variables aspects of Human Development. (Income for better living,
Education and Life disaggregating by gender. expectancy),
12. Capital Formation
Ans: Capital Formation refers to the net additions made to equipment, factory buildings,
etc. capital goods such as machinery,
13. Marketable Surplus
Ans: It refers to the excess of agricultural output over and above what is subsistance
required for the living of the farmers and their family members,
14. Joint Family System
Ans: The children even after their marriage continue to have with their family. The Joint
parents is called a joint Family System is a feature or developing

FREQUENTLY ASKED QUESTIONS (FAQS) IN BIE

LAQ’S

1. Explain the concepts of economic growth and development. What are

their difference? March-16
2. Examine the indicators of economic development May-18
3. Analyse critically the characteristics of developing economies with
special reference to India (March-20, June-19, March-19, March-17,
May-17)
or
Explain the characteristics features of developing countries with reference
to India(March-18)
or
Explain the features of developing countries with special reference to
India
Or
Describe the characteristics of developing countries with reference to
India

Very Short Answer Type Questions (VSAQ’s)

1. Economic Growth
2. Economic Development
3. Self-Reliance
4. Inclusive growth
5. PQLI
6. Marketable surplus of Agriculture