India-an underdeveloped economy

1) Low per capita income-Compared with the developed countries of the west, India economy was appallingly poor in early 1950s

          After Independence the govt wanted to give a big push to the stand still economy and for this purpose, it employed the technique of democratic planning. With the efforts of the govt, some development has taken place during the five decades of planning, but India still remains one of the most under developed countries in terms of per capita income.

     Acc to World Development Report 2006, India was one of the 45 low income economies in 2004.India’s PPP estimate of GNP per capita is around 1/10^th of the GNP of developed countries

2) Inadequate distribution of income: This is bcz private ownership of means of production inevitably leads to concentration of wealth in a few hands. We can see an increase of Gini Lorenz ratio.

3) High incidence of poverty: The % of population below poverty line is abt 50% in rural areas and 40% in urban areas in 1999-2000

30 days recall 26%

7 days recall 23%

Since 1970s there has been a decline in the incidence of poverty.Neverthless, the % of population below the poverty line is still quite high

4) Predominance of agriculture: In 1951 abt70% of the population was employed in agriculture as against 65% in 1991.

    A 2^nd indicator of the predominance of agriculture in the Indian economy is the proportion of national income originating in this sector. In 2004 agriculture contributes 22% of the GDP as against 50 % in 1951.

5)Rapid population growth and high dependency ratio: Population in India over the years has increased at the rate of 2.14% per annum.The country is at present passing through the 2^nd stage of demographic transition which is characterized by a falling death rate without a corresponding decline in birth rate

         Over the years per head agriculture land has steadily increased in the country. The pressure of population on agricultural land in a country can be reduced only if it is possible to transfer some population to other sectors of economic activities. But in India, growth of industries and commerce has been sluggish and inter sectoral transfer of population has not been possible.Consequently, the pressure of population on agricultural land continues to grow swelling the no of disguised unemployed

Rapid population growth has resulted in a high dependency ration.

6) Low level of human development: Human development is usually measured in terms of human development index (HDI), which is composed of 3 basic indicators-longevity, knowledge and standard of living

        Longevity is measured by life expectancy at birth; knowledge by a combination of adult literacy (2/3^rd) and combined primary, secondary and tertiary ratios (1/3^rd) and standard of living is measured by GDP per capita (PPP)

India with a HDI value of 0.602 ranks with a lowly 127 in terms of HDI

7) Unemployment: 

 8) Scarcity of capital: Low capital formation proportion rates means low rates of growth of national product, unless capital output ratio declines i.e., unless more output can be turned out per unit of capital.

In the country has to grow, they have no choice except to raise their rates of capital accumulation. This has been India’s problem during last 5 decades.

In 1950-51,the gross saving investment rate in this country was 9%.At this rate of capital formation, the country could not hope to record any impressive economic growth.

In 1990-91, rates of gross domestic saving and gross domestic capital formation were 23 and 26%.

In 2004-05, these rates were 29% and 30%

High rates of saving and capital formation allow an economy to grow at a fast rate, introduce latest technologies and become internationally competitive

9) Technological backwardness: There still exists a wide gap between the sophisticated production techniques of the developed countries and India’s technology

10) Lack of entrepreneurs:

Growth and Development

Economic growth refers to increase over time in a country’s real output of goods and services ie, product per capita.

 

Economic development implies progressive changes in the socio-economic structure of a country. It involves a steady decline in agriculture’s share in GNP and a corresponding increase in the share of industries, trade, banking, construction and services .This transformation in economic structure is invariably accompanied by a shift in the occupational structure of the labor force and an improvement in its skill and productivity.

How to measure growth

The task of formulating a precise formula for economic growth is a difficult one. The basic problem is of determining an objective which is to be realized in the process of a change in economic structure.

Economic growth is not an end in itself. It is rather a means to an end. A necessary requirement of economic growth is an increased output of goods and services. Perhaps with this idea, economic growth has been defined in terms of national income aggregates. Economic growth is a process whereby an economy’s gross national product (GNP) increases over a long period of time.

In a closed economy no distinction is to be made between GNP and GDP whereas in an economic open to foreign trade, national product may be greater or less than domestic product depending upon the net inflow or outflow of income.

A country may record an increase in it GNP if its people have invested massive capital outside the country and earn big profits therefrom.But this does not mean that the economy has developed.

Economic growth of a nation may be defined as a sustained increase in its population and product per capita.

Some economic believe that the essence of economic growth is an increase in product per head of population.

Economic activity involves many dimensions .Therefore many patterns of economic changes are possible. In the absence of any scientific norm, it is difficult to determine the extent of growth. In the process of economic growth, all the variables do not move in the same direction and with same speed.GDP or GNP may rise, while per capita product may decline, while per capita consumption may go down.

So we select a crucial variable which may be used as an index of growth. The index to be chosen must depend upon the problem to be studied. Most of the variables are interrelated and move in the same direction.

In a closed economy per capita domestic product and per capita national product are identical, but they may not be equal to per capita consumption. In an expanding economy, improvement in per capita consumption will be far less than the rise in per capita product for the simple reason that over time the rate of capital formation has to be stepped up.

Noted economist Kuznets underlines three poins.First, the sustained increase in national product per capita is a manifestation of economic growth. Second advancing technology provides the basis for sustained economic growth .Third institutional and ideological adjustments must be made, failing which growth potential that is created by growth productive forces will not be realized

what is economic growth

Economic growth may be defined as a rate of expansion that can move an underdeveloped country from a near subsistence mode of living to substantially higher levels in a comparatively short period of time i.e, in decades rather than centuries.

Rapid economic growth has been accompanied by greater industrialization. More accurately the process of economic growth can be described in terms of greater commercialization of economic activities.