(Chapter 1: Characteristics of Unde Countries with Special Rate 12. Inefficient Administrative Set Up. Underdeveloped suffering from their existing inefficient admi ef ‘and sound administrative set up, these of proper economic organisation, lack of investment and lack decisions leading to total mismanagement of these economies Is India a developing economy? India it has all the symptoms which are to be However, it would be appropriate if we look theoretically at the me term ‘underdevelopment. Though the term underdevelopm defined by various economists in different ways but the most accept= of this term is one which relates to the state of capacity utilisation of the and the potential of an economy to grow. An underdeveloped ¢ economy is one which has the resources to grow but due to lack know-how and capital, these resources remain unutilised or under hence the country remains poor, Vicious Circle of Poverty is a concept proposed by Nurkse. It ex per capita income in underdeveloped countries as follows (i) People in the less developed countries have low per capita (ii) Having low income their rate of savings is low. (if) When savings are small in 2 country, inwestment will (io) Low investment leads to low productivity. (e) With low productivity level, the income és bound to be low (vi) People as suchFemain poor, In this way vicious circle of poverty is completed. Thus, we can say that less developed countries are poor becouse they do not have sufficient capital resources for investment. Capital has 2 central position for economic development. A financially poor country is trapped in its own poverty. A country can get rid of its poverty if the rate of capital formation in the country and is more than increases the rate of population growth. So capital formation is the key factor that will increase economic development by demand and supply of capital. Q. 2. (a) Distinguish between a developing and a developed economy. (b) Is India a developing economy? Give reasons, [2011 (E); 2012 SOL ‘Ans. (a) The World Bank arranges nations as indicated by their GNI per capita pay. The order of a nation does rely upon its income as well as on different variables that influence how their population lives, how: the economies are incorporated into the worldwide framework, and the extension and expansion of their businesses. Developed Countries. Developed Countries are the countries which are developed in terms of economy and industrialization. The ‘Coumbiien: are also known as Advanced countries or the first world countries, as they are self-sufficient nations. 7 Human Development Index (HDI) statistics rank the cotntries on the basis of their development. The country which is having a high standard of living. high GDP, high child welfare, health care, excellent medical, transportation, communication and ai fack better housing and living condi———————————— lt—‘SCS 4M Shiv Das DELHI UNIVERSITY SERIES i industrial, infrastructural and technological advancement, higher per capita income, increase in life expectancy, etc. are known as Developed Country. These countries generate more revenue from the industrial sector as compared to | service sector as they are having a post-industrial economy. : ; The following are the names ofseme developed countries: Australia, Canada, France, Germany, Italy, Japan, Norway, Sweden, Switzerland, United States. Developing Countries. The countries who are going. through the initial of industrial development along with low per capita income are known: Developing Countries. These countries come under the category of third countries. They are also known as lower developed countries. Developing Countries depend upon the Developed Countries, to them in establishing industries across the country, The country has Human Development Index (HDD, ie,, the country does not enjoy healthy safe environment to live, low Gross Domestic Product, high illiteracy rate, educational, transportation, communication and medical) u government debt, unequal distribution of i c6 Shiv Das DELI UNIVERSITY SERVES for capital and supy intries due to low penciapitir oss, Inv India ity 2003, about 24%, National Income was saved ane in 2010, this Neale 33%. However, inspite of vi high rate of oa aradoxical situation, em 10% with for tna. 10. Lov underdew a4 AH, Man a concept country it8 m Shiv Das DELHI UNIVERSITY SERIES Developed Countries (LDCs) make for only little capital formation and investment. At low levels of income, people find it difficult to make a substantial amount of sacrifice of present consumption in favour of savings. So, capital formation becomes a difficult task. If present productivity could be increased, such a situation might occur and capital could be accumulated. But this constitutes the vicious circle, “For these improvements in productivity will typically require that better tools are used for production—that is, more capital—to work with. Without capital accumulation, output and productivity will remain low. With low output and productivity, there will beno substantial savings or capital formation.” There is the ‘vicious circle of a limited market’. In poor country where the bulk of the population lives in rural areas, the extent of the market is likely to be very limited, Another obstacle to development is lack of adequate transport and communication facilities. However, according to A.O. Hirschman, the key shortage in LDCs is decision- making ability, not capital or lack of an organisational framework. If this resource can be mobilised, many of the alleged obstacles to development will disappear. In fact, there is a whole group of ‘vicious circles’. Large-scale industry requires a big market. But the extent of the market is limited in LDCs in the initial stage before there occurs a large-scale industrialisation, This may act as a barrier to growth. There is also a related and moré general ‘vicious circle of interdependent production’. Specialised industry is an interdependent industry. “A firm must have not only markets in which to sell its products but also supplying industries tovprovide the tools and unlimited goods its productive activities require”. So, it bectmes difficult to establish one industry when the supporting industries have not yet come into existence. And, if we cannot succeed in setting up one particular industry it is difficult to see how we can esiablish a series of interclepencent industries. Q. 5, What do you understand by ‘vicious circle af poverty’? Give strategies to break this circle. Wea, 5 2016 Ans. Vicious circle of poverty, Vicious circle of poverty is a concept proposed by Nurkse. It explains the low per capita income Rees countries as follows (i) People in the less developed countries have low per capita income, (if) Having low income their rate of savings is low. (iii) When savings are small in a country, investment will also be low. (io) Low investment leads to low productivit (@) With low productivity level, the income is bound to be low. (vi) People as such remain poor. In this way vicious circle of poverty is completed. ; Broadly, the methods to solve the problem of vicious circle of include —(A) Solution to the Supply side and (B) Solution to the and (C) Other solutions, ‘ Solution to Supply Side vicious i Inorder 0,s RS (Chapter 1: Characieristies of Underdeveloped Countries with Special Reference to I marriages, social ceremonies, etc. should be curtailed, In under developed countries, the possibilities of voluntary savings are very less ‘Thus, in this regard, Government interference is necessarily required, The Government can increase savings by altering its fiscal policy. The Government can impose heavy taxes on luxurious goods, Moreover, it can inerease the role of direct taxes. Thus, the Government can curtail consumption by doing alterations in tax system. 2, Increase in Investment. To break the vicious circle of poverty apart from increasing, savings, investment of savings in productive channels is also of immense use, ‘The policies of short run and long run investment should be coordinated, By short period investment, people can get the necessary goods at fair rates, which will have favourable impact on their skill Moreover, along with short period investment, investment in the establishment of multipurpose projects, iron, chemical fertilizers should be properly encouraged. In. under developed countries, proper monetary and banking policies should be adopted which may provide facilities and encouragement to small savings. B. Solution to Demand Side Vicious Circle: In under developed countries to resolve the demand side vicious circle, extent of the market should be widened so that people may get inducement to invest, In this regard, Prof. Nurkse advocated the doctrine of balanced growth. According to the principle of balanced growth, investment should be done in every sphere of an economy so that demand of one sector can be fulfilled by another sector. Thus, aft increase in demand will lead to wider extent of the market and so the inducement to invest, On the other hand, economists like Hirschman, Singer, Fleming do not consider the policy of balanced growth practically fair. According to them, the policy of unbalanced growth would be more useful. In under developed ‘countries, there is every possibility of increase in demand and there is the need of increase in monetary income. Majority of under developed countries have adopted the policy of planned development. ‘Accordingly, due to more investment in public sector, supply of money increases. Due to inerease in monetary income, size of the market gets widened. ‘These countries attempt to wiclen the size of foreign market by increasing their exports. C. Other Solution to vicious Circle of Poverty: In under developed countries, the main obstacle in economic growth is the backwardness of human power, Suggestions can be made to increase the skill of human power. For instance, in these countries, education, technical knowl and administrative training should be enlarged. In these countries health facilities should be enhanced which may increase the efficiency of the workers, ‘Transportation and communication should be developed. oe