CHAPTER

1
ECONOMIC GROWTH AND
DEVELOPMENT
1.7 Characteristic features of Developed
Countries
1.8 Characteristic features of Developing
1.0 Introduction
countries with special reference to India
1.1 Economic growth
Model Questions
1.2 Economic Development
Glossary
1.3 Differences Between Economic Growth and
References
Development
1.4 Classification of the world countries
1.5 Indicators of Economic development
1.6 Determinants of Economic Development

1.0 Introduction
The study of Economic development has been attracting the attention of the economists right
from the days of Adam Smith. But prior to the Second World War the focus was more on the
problems of the Western Countries which were Industrialized and advanced. Afterwards the attention
turned to the developing countries. There have been several attempts to analyze the persistent
problems of under development and to find solutions for speedy and sustained Economic
development. In the process many development theories and models emerged.
Economic development is now recognized as an improvement in the quality of human life,
instead of a mere rise in growth rate and per capita income. The developed countries try to increase
the growth rate and improve the standard of living in their economies. Whereas developing countries
like India, strive to tackle the problems of poverty, unemployment, income inequalities etc., Economic
development can improve the productivity and the standard of living. According to the world
development report (2013), 18.5 per cent of the world population lives in the developed countries
(high income countries) and remaining 81.5 per cent lives in the developing countries (low and
middle income countries). In this context Cairan Cross described developing countries as “The
Slums of the world Economy”.
 2 Economics
Till 1960s the terms economic growth and economic development were used synonymously.
But Economists like Hicks and Schumpeter made a distinction between Economic growth and
Economic development. In their opinion the concept of economic growth is related to the problems
of developed countries where as the concept of economic development deals with the problems of
developing countries.
The present chapter deals with the concepts of economic growth and economic development
and elaborates the characteristic features of developed and developing countries.

1.1 Economic Growth

The term economic growth refers to the increase in the real output of goods and services in
an economy. It is measured as the per cent rate of increase in real GDP. Economic growth occurs
when the growth rate of real output is more than the growth rate of population. So all the countries
try to increase the output on one hand and reduce the growth rate of population on the other so that
the availability of goods and services per capita will increase.
The progress of any economy depends on the following factors
1. The quantity and quality of its labour force.
2. Availability of natural resources
3. The accumulation of capital.
4. The technological change and innovation.

1.2 Economic Development

The meaning of the term economic development is broader than economic growth. Economic
development refers to progressive changes in the socio economic structure of a country. It is
quantitative as well as qualitative because it includes increase in real national income, real per capita
income, economic welfare, human development, institutional and technological changes.
Robert McNamara, former World Bank President had estimated that about 40 per cent of
developing world’s population did not benefit at all from the economic growth and structural changes
during 1950s and 1960s. Therefore economists in 1970s redefined the concept of economic
development in terms of economic welfare or in terms of the satisfaction of the basic needs of the
people.
1.2.1 Definitions of Economic development
Following definitions give a clear idea of the concept of economic development.
According to C.P. Kindle Berger “Economic growth means more output and economic
development implies more output and changes in the technological and institutional arrangements by
which it is produced”.
Economic Growth and Development 3

According to Prof. G.M. Meier “Economic development may be defined as a process

where by the real per capita income of the country increases over a long period of time”.
According to Colin Clark “Economic development is simply an increase in economic welfare”.
According to Michael P. Todaro “Economic development is a multidimensional 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 absolute poverty”.
According to United Nations Expert committee “Development concerns not only man’s
material needs but also the improvement of the social conditions of his life. Development is therefore
not only economic growth, but growth plus change- Social, cultural, institutional and economic”.
The concept of economic development has the following aspects:
1. Economic development is a dynamic and long term process.
2. It is measured by the real per capita income.
3. It includes growth with structural changes.
4. It ensures equal distribution of income and wealth.
5. It improves the quality of the life of the people, increases employment opportunities and
eradicates the poverty.

1.3 Differences between economic

growth and development
Table1.1: Distinction Between Economic Growth and Development
Economic Growth Economic Development
1. Economic growth refers to an increase in a 1. Economic development refers to not only
country’s real output of goods and services economic growth but also progressive
2. It is a single dimensional phenomenon changes in the socio economic structure of
3. It is narrow concept. a country.
4. It is mainly related to developed countries 2. It is a multidimensional phenomenon.
Eg. USA, Canada etc. 3. It is a wider concept.
5. It does not require Governmental 4. It is generally related to developing
intervention. countries. Eg: India, China etc.
6. It denotes quantitative changes in the 5. It is not possible to achieve economic
economy. development without the intervention of
7. Economic growth does not indicate the the government.
distribution of income and wealth in the 6. It denotes qualitative changes in the
economy. economy.
8. Economic growth can be compared with 7. Economic development indicates the
the physical growth of a person. distribution of income and wealth in the
9. It can be measured. economy.
8. Economic development is like overall
improvement of a person. (Both physical as
well as intellectual)
9. It cannot be measured.
 4 Economics
1.4 Classification of the world countries
The World Bank has classified the countries of the world according to the GNI per capita.
The World Bank publishes the World Development Report every year with a different theme. To
understand the classification of the countries, we need to have an idea of the concepts like Gross
National Income (GNI) and Purchasing Power Parity (PPP)
1.4.1 Gross National Income (GNI)
Gross National Income (GNI) is the sum of value added by all producers who are residents
of a nation, plus any product taxes (minus subsidies) not included in output, plus income received
from abroad such as employee compensation and property income. In other words it is the income
received by a country both domestically and from overseas.
1.4.2 Purchasing Power Parity (PPP)
Purchasing Power Parity is used worldwide to compare the income levels in different countries.
It aims to determine the adjustments needed to be made in exchange rates of two currencies to
make them at par with the purchasing power of each other.
The World Bank in its world development report (2014) classified the countries on the basis
of Gross National Income (G.N.I) per capita. Countries are divided into
1. Low Income Countries
With G.N.I per capita of $1,045 and below
2. Middle Income Countries
With G.N.I per capita ranging between $1,046 and $12,746. The middle income countries
are again divided into
a. Lower middle income countries
With G.N.I per capita ranging between $1,046 and $4,125
b. Upper middle income countries
With G.N.I per capita ranging between $4,126 and $12,746.
3. High Income Countries
With G.N.I per capita of $12,747 or more.
Economic Growth and Development 5

1.5 Indicators of Economic Development

The economic indicators are the statistics about an economic activity. The economic indicators
help to analyse the performance of an economy. Following are some of the indicators of economic
development.
(a) Real National Income
(b) Real Per capita Income
(c) Standard of Living
But it has been felt that the above indicators have certain deficiencies and do not reflect the
overall change in the economy. The real national income fails to take into consideration the growth
of the population in the country which can nullify the development in the economy. The per capita
income does not clearly reflect the standard of living because sometimes per capita consumption
may be falling even though the per capita income increases. More over it does not consider the
nature of income distribution in the economy. So various other indicators like PQLI, MEW, NEW
and HDI have been developed over a period of time.
1.5.1 Physical Quality of Life Index (PQLI)
According to Morris D Morris PQLI measures the social progress of the community. It
covers different indicators like health, education, drinking water, sanitation, nutrition etc. It is
calculated on basis of 3 parameters of
1. Life expectancy at age one
2. Infant mortality rate (IMR)
3. Literacy rate
1.5.2 Measure of Economic Welfare (MEW)
William Nordhaus and James Tobin introduced the concept of MEW in addition to GNP
as an indicator of economic development. MEW takes national output as a starting point, but
adjusts it to include the value of leisure time, amount of unpaid work in an economy and deducts the
value of environmental damage caused by industrial production and consumption which change the
welfare value of the GNP.
1.5.3 Net Economic Welfare (NEW)
By making some changes to the MEW, Paul Samuelson introduced the concept of Net
Economic Welfare. It is a measure that attempts to put a value on the cost of pollution, crime,
congestion and other negative effects to find a better measure of true national income.
 6 Economics
1.5.4 Human Development Index (HDI)
The focus of the economists turned from economic growth to human development. Human
development is a process of enhancing the choices of the people and raising their standard of living.
From this background a new concept called human development index was introduced by Mahabub-
ul-Haq in the first Human Development Report of the United Nations Development Programme
(UNDP) in 1990. In addition to the earlier concepts like GNI, PCI, MEW, NEW and PQLI, the
HDI is being used as a better measure of economic development. It measures the country’s over all
achievement in its social and economic dimensions. It is a composite index of three dimensions like
life expectancy, knowledge and a decent standard of living.

1.6 Determinants of Economic Development

Economic development is a complex process. It is influenced by a number of factors such as
natural resources, capital, human resources, technology, social attitude of the people and political
condition in the country. All the factors having strong bearing on economic development are divided
into 3 categories as shown below.
Fig 1

Determinants of
Economic Development

1. Natural factors/ 2. Economic 3. Non-Economic

Resources factors factors

a. Capital formation a. Human resources

b. Marketable Surplus b. Technical progress
c. Foreign trade c. Political freedom
d. Social organization
e. Corruption
f. Desire to develop
Let us examine these factors in detail
1. Natural Resources
The development of any country depends on the availability of natural resources. Economists
like Jacob Viner, William.J.Baumol and W.A.Lewis gave more importance to the natural resources
in a country’s development. The progress of agriculture depends on availability of fertile soil,
Economic Growth and Development 7

favourable climate, and abundant supply of water resources. Rapid industrialisation can be achieved
with the availability of coal, petroleum and minerals like iron ore, copper, bauxite, tin etc. However
the natural resources can make effective contribution to the economic development only when they
are properly utilized.
2. Economic Factors:
a) Capital Formation: Capital formation determines the pace of the economic development
in a country. The significant role of capital in raising the level of production has been
widely accepted. Lack of capital in the developing countries is the main obstacle to
achieve economic development. So they have to save more to increase the capital.
Development of economic and social infrastructure depends on the availability of capital.
b) Marketable Surplus: Marketable surplus refers to the excess of output in the agriculture
sector after the basic needs of the rural people are met. The marketable surplus raises
the incomes in the rural areas which in turn stimulates the demand for goods and services.
So the development of other sectors in an economy depends on the marketable surplus,
particularly in the low income countries.
c) Foreign Trade: Foreign trade helps the countries to increase the production of goods
and services through division of Labour and specialisation. It results in the efficient use
of the resources. Moreover foreign trade provides the market for goods and services
which will expand the output and employment in the economy. Foreign trade facilitates
the developing countries to import capital, technology and managerial skills from the
developed countries. So Trade has been described as an engine of growth as it
speeds up the process of growth and development.
3. Non Economic Factors
a) Human Resources: The people in the country are called as human resources. Human
resources are an important determinant of economic development because other
resources are utilized by the people in the Country. If the labour is efficient and skilled it
will contribute more to the development. If a Country fails to use its man power properly,
then it’s population will become a burden on the economy.
b) Technical progress: Technology plays an important role in the economic development.
The use of modern and sophisticated technology enhances the productivity and
production in all sectors of the economy. It minimizes the cost of production. All countries
need to invest more on Research and Development to improve the technology.
c) Political Freedom: Majority of the developing countries were under the British rule in
the past. The British exploited the resources of those countries and made them as a
 8 Economics
market for their goods and services. After they got independence all these countries
have initiated planning strategy to achieve faster economic development. Hence political
freedom is necessary to take strong and independent decisions regarding the development
process.
d) Social Organisation: Development process requires the active participation of all
sections of people in a country. But in many countries due to lopsided development,
masses show apathy towards the development process as they do not get the fruits of
development. Experiences suggest that the defective social organization helped the rich
to garner the benefits of development. This has led to widespread disparities among the
people.
e) Corruption: The rampant corruption at various levels in the developing countries has
become a negative factor in the process of development. If the corruption is not rooted
out, the capitalists, traders and other powerful economic classes will continue to exploit
the resources of the country for their personal interests. The factors like tax evasion,
misappropriation of public funds and connivance of the officials are the major hindrances
in the way of development.
f) Desire to Develop: The development process in any Country depends on the peoples
desire to develop. According to Richard T. Gill “economic development is not a
mechanical process. It is a human enterprise. It’s outcome will depend on the skill,
quality and attitudes of the people”.

1.7 Characteristic features of Developed

countries
Based on certain features like per capita income, standard of living, availability and utilization
of resources, technological development etc.., the countries of the world are classified into developed
countries and developing countries. The Developed countries are also referred to as high income
countries, industrialised countries and advanced countries. USA, UK, France, Germany,
Canada, Japan are some of the developed countries.
According to the World Development Report 2013, the high income economies comprise
about 18.50 per cent of the world population and accounted for 68.80 per cent of world GNI. In
the same way the developing countries are also termed as low income countries, under developed
countries, backward countries and third world countries. Eg. India, China, Pakistan etc.
Economic Growth and Development 9

Let us discuss the features of the developed countries

1. High per capita Income.
2. Importance of non-agricultural sectors.
3. Abundance of capital and technology.
4. Low level of unemployment.
5. Better quality of life.
1. High per capita Income
The income per head per year is called per capita income. The main feature of the developed
countries is high per capita income. The Table 1.2 indicates the per capita GNI (at market prices of
2012) of some developed countries along with India and China.
Table 1.2
(Fig. in US Dollars)

Country Exchange Rate Basis Purchasing power parity Basis

Switzerland 82,730 56,240
U.S.A 50,120 50,610
Japan 47,870 36,290
Germany 44,010 41,890
U.K 38,250 36,880
China 5,740 9,210
India 1,530 3,840
Source: World Development Indicators – 2013
It can be noticed from the Table 1.2 that the per capita GNI of developed countries is far
higher than the per capita GNI of the developing countries like India and China. In the year 2012
the per capita G.N.I of U.S.A ($ 50,120) at official exchange rate was nearly 33 times and at
Purchasing Power Parity ($50,610) was 13 times that of India ($1,530). So there are huge differences
in the per capita incomes of developed and developing countries.
2. Importance of Non-Agricultural sectors
The developed economies are non agriculture in nature. The Industry and service sectors are
well developed in these economies. The contribution of these sectors to income and the employment
generation is very high when compared to the agriculture sector. These sectors make use of advanced
technology. So the productivity is higher than that of agriculture sector and it becomes the driving
force behind the progress of these economies.
 10 Economics
Table 1.3: Population engaged in Agriculture and Share of different sectors to GDP
Active
population
Country Engaged in Contribution to GDP (Percentage)
Agriculture
(Percentage) Agriculture Industry Services
Year 2011 2012 2012 2012
U.K 1.2 0.7 20.5 78.8
U.S.A 1.6 1.3 21.0 77.7
Japan 3.7 1.2 25.6 73.2
China 36.7 10.1 45.3 44.6
India 51.1 18.0 31.9 50.1
Source: World Bank, world development Indicators 2014
It can be observed from the table 1.3 that the developed countries are Industry and Service
sector oriented whereas the developing countries still depend on the agriculture sector. In the USA
the proportion of people engaged in agriculture sector is just 1.6 per cent and its contribution to
GDP is 1.3 per cent. Whereas the corresponding figures for a developing country like India are
51.1 per cent and 18.0 per cent respectively.
3. Abundance of Capital and Technology
The most important feature of developed countries is high rate of capital formation and wide
spread use of modern and sophisticated technology. As the developed countries are high income
countries, their capacity to save is also very high. The banking system and financial institutions
efficiently mobilize the savings. Table 1.4 shows the gross capital formation as a percentage of GDP
in developed countries.
Table 1.4: Gross capital formation as a percentage of GDP
Country 1990 2012
Japan 33 19.9*
Germany 24 17.2
U.K 20 14.5
U.S.A 18 14.9*
China 35 48.4*
India 24 35.6
Source: World Bank, World Development Indicators 2013 (*2011)
Economic Growth and Development 11

Table 1.4 shows that the developed countries are capital abundant. The availability of capital
leads to technical progress in these economies. In the above Table there is a decline in the rate of
capital formation due to the economic slowdown in these economies which is a temporary
phenomenon. The above Table reveals that rate of gross capital formation in India and China is
higher than that of developed countries.
4. Low level of unemployment:
There is a clear difference in the nature and magnitude of unemployment between developed
and developing countries. The unemployment in the developed countries is caused by the shortage
of effective demand. The unemployment in these economies is cyclical and frictional. Whereas
developing countries like India experience open and disguised unemployment, which are caused by
deficiency of capital. The rate of unemployment is marginal and the skills and mobility of labour are
higher in the developed countries.
5. Better Quality of life
A better quality of life is ensured in the developed countries due to the effective social security
system, better compliance of pollution standards, availability of safe drinking water, well organized
health care system and sanitation. The expenditure on education, research, training, skill formation
and health is more in these countries. For Eg. The public expenditure on education and research in
USA is more than 6 per cent of its GDP, whereas the developing countries spend around 3 per cent
of their GDP. India spent 3.3 per cent of its GDP on education in 2004-05 and it increased to 4 per
cent in 2011-12.
The Table 1.5 shows life expectancy, adult literacy rates and HDI ranks of different countries
for the year 2013.
Table 1.5
Country Life Expectancy Adult literacy H.D.I Rank
(years) (percentage)
Year 2013 2013 2013
Canada 81.1 99.0 8
U.S.A 78.7 99.0 5
Japan 83.6 99.0 17
France 81.7 99.0 20
U.K 80.3 99.0 14
China 73.7 95.1 91
India 65.8 74.04 135
Source: UNDP, Human Development Report 2014
 12 Economics
It is clear from the table 1.5 that the performance of the developed countries in terms of life
expectancy and adult literacy is notable when compared to the developing countries. In the case of
human development, the developed countries like Narway, Australia and Switzerland ranked First,
Second and Third respectively in 2013 and India stands at 135 out of 187 countries.

1.8 Characteristic Features of Developing

Countries with special reference to India
1.8.1 Definitions
According to United Nations, “the countries which have real per capita income less than a
quarter of the per capita income of the United States are developing economies”.
According to the Planning Commission of India. “An under developed economy is
characterized by the existence, in greater or lesser degree, of unutilized or underutilised man power
on the one hand and of unexploited natural resources on the other”.
On the basis of per capita income, the developing countries are separated from the developed
countries. The developing countries have different characteristic features when compared to the
developed countries.
1. Low per capita Income
2. Scarcity of Capital
3. Demographic Characteristics
4. Unemployment
5. Predominance of Agriculture
6. High Incidence of poverty
7. Income Inequalities
8. Low Quality of Life
9. Technological Backwardness
10. High Density of population
11. Dual Economy
12. Price Instability
1. Low per capita Income
Low per capita income is the main feature of the developing countries. Table 1.6 represents
the per capita GNI of different groups of countries.
Economic Growth and Development 13

Table 1.6: Per capita G.N.I of various Groups of countries (2011)

(Fig in US Dollars)

Country/Group Per capita G.N.I

Exchange P.P.P Basis
Rate Basis
Low Income 583 1,387
Lower Middle Income 1,877 3,912
Upper Middle Income 6,987 10,740
High Income 37,594 37,760
China 5,740 9,210
India 1,530 3,840
Source: World Bank 2013, World Development Indicators (2013)
It is very clear from the Table 1.6 that there are wide differences among different groups of
countries in terms of per capita GNI. The low and middle income countries which are known as
developing countries, lag far behind the developed countries when it comes to per capita income.
The per capita income of India and China which are considered as fast growing economies is also
very less compared to the per capita income of developed countries.
The per capita GNI (Exchange rate basis) of India has increased from $ 1,070 (2008) to
$1,530 (2011), and on Purchasing Power Parity basis it increased from the $ 2,960 to $3,840 in
the same period but it still remains in the category of low middle income countries.
2. Scarcity of Capital
The insufficient amount of capital is characteristic feature of the developing countries. They
are often called as “capital poor” economies. One indication of capital deficiency is the low amount
of capital per head of population. The rate of capital formation which is an important determinant of
economic development, is very low in these economies. It ranges between 15 and 20 per cent of
their GDP. The rate of savings which stimulates the capital is very low because of low per capita
incomes. Moreover the incentives for investment and the institutional arrangements are not effective
to raise the levels of saving and investment.
But In recent times the rates of saving and capital formation are high in case of India and
China when compared to the developed countries. This is shown in the Table 1.7
 14 Economics
Table 1.7: Gross Capital Formation and Gross Domestic savings as a per cent of G.D.P
Country Gross capital Formation Gross Domestic saving
1990 2012 1990 2012
U.S.A 18 14.9 * 16 11.1 *
U.K 20 14.5 18 12.1
Japan 33 19.9 * 34 19.0 *
Germany 24 17.2 24 22.9
China 35 48.4 38 52.5 *
India 24 35.6 23 27.9

Source: World Bank, World Development Indicators 2013, *2011

As per the table 1.7 in India the gross domestic saving rate has 23 per cent of GDP in 1990
and it increased to 27.9 per cent in 2012. In the same period the gross capital formation rate was
24 per cent of GDP and it increased to 35.6 per cent. It reflects the pace of development in the
Indian economy.
3. Demographic Characteristics
The developing countries are facing the problem of heavy population. Many of these countries
have recorded the growth rate of population around 2 per cent. They are successful in reducing the
mortality rates by improving the medical facilities but failed to control the birth rates in the same
manner. This has led to population explosion. The huge population exerted pressure on the natural
resources which resulted in poverty and unemployment. So the standard of living remained at low
level.
India is also facing the problem of heavy population. Its population was 1210 million in 2011
and it increased to 1278 million in 2015 which is 17.5 per cent of world population. When we
observe the composition of population in india, it can be understood that there is higher dependency
on the productive population which is not conducive for the economic development.
4. Unemployment
Wide spread unemployment is one of the serious problems faced by the developing countries.
The unemployment in these countries is open and it is several times higher than that of developed
countries. The rural urban migration is adding to the problem of open unemployment in the urban
areas. As the slow growing industrial sector fails to absorb the increasing labour force the pressure
on the agriculture sector increases. This results in the disguised unemployment in the agriculture
sector.
Economic Growth and Development 15

In the Indian economy, the unemployment is because of scarcity of capital. It is also facing the
problem of open and disguised unemployment. The planning commission estimated that there was
a backlog of 37 million unemployed at the beginning of eleventh plan and it was expected that 45
million would add up to the existing unemployed force and the total unemployed would be 82
million by the end of the plan.
5. Predominance of Agriculture
According to Harvey Leibenstein, the developing economies are essentially agrarian in
their character. About 30 to 70 per cent of the population depends on agriculture in these economies.
J.K.Galbraith stated that “a purely agricultural country is likely to be unprogressive even in its
agriculture”. The agriculture sector in these economies is labour intensive and lags behind in making
use of available technology. So the productivity of the agriculture sector is lower in these economies.
Moreover the agriculture land is fragmented and subdivided due to heavy population pressure,
which leads to small size of land holdings. The incomes of the people in agriculture are low because
of little marketable surplus. Its contribution to GDP ranges between 20 and 30 percent.
According to Indian Economic Survey - 2013-14, 54.6 per cent of the working population
is engaged in the agriculture sector and it contributes 13.9 per cent of the GDP. The agriculture
sector in the Indian economy is primitive and uses obsolete methods of production. Recently the
agriculture activity has become uneconomical and majority of the farmers are debt ridden.
6. High Incidence of Poverty
The most important feature of developing countries is the prevalence of mass poverty which
means a certain percentage of population is not able to fulfill the basic needs of life. The people in
these countries suffer from low levels of income, malnutrition, ill health and illiteracy. At relatively
lower levels of per capita income, large income inequalities have resulted in widespread poverty in
the developing economies.
India is also facing the problem of poverty. As per the recommendation of Tendulkar committee,
the planning commission has updated the poverty line as monthly per capita consumption expenditure
(MPCE) of Rs. 673 for rural areas and Rs. 860 for urban areas in 2009-10. Based on this the
percentage of population living below the poverty line was 29.8 per cent in 2009-10.
7. Income Inequalities
Another distinguishing characteristic of the developing economies is the disparities in income
and wealth enjoyed by the rich and poor sections of the society. Compared to the developed
countries, the income inequalities are larger in the developing countries. The situation in India is no
different.
 16 Economics
Various rounds of surveys conducted by the NSSO corroborates the fact that the inequalities
have increased over the years in the Indian economy. According to 68th round of NSSO for the
year 2011-12, the monthly per capita consumption expenditure of the poorest 10 percent of the
rural population rose by 11.5 percent in 2011-12 compared with the 66th round for the year 2009-
10. In the same period, the expenditure of the richest 10 percent of population increased by 38 per
cent. In urban areas, the growth was 17.2 per cent and 30.2 per cent respectively over the same
period.
According to a report by the Organization for Economic Cooperation and Development
(OECD) in December 2011, the inequalities in earnings in India have doubled over the past two
decades. India’s richest 100 had a combined net worth which was almost 17 percent of its GDP of
Rs.71,57,412 Crores in 2010-11.
8. Low Quality of Life
The quality of life in the developing countries is very low in comparison with the developed
countries. Three basic indices of real income, health and educational attainments are used to measure
the quality of life of the people. The people in the developing countries suffer from malnutrition, high
levels of pollution, lack of sanitation and safe drinking water. Improving the population’s health,
education and technical training must be given top priority.
The life expectancy at birth in developing countries is below 65 years whereas it is more than
75 years in the developed countries. In the case of infant mortality rate, it is 61 per thousand live
births in the developing countries and 6 in the developed countries. We have already observed that
the GNP per capita of developing countries is much lower than that of developed countries.
9. Technological Backwardness
In the developing countries the production techniques are backward due to lack of focus on
the research and development. These countries use labour intensive technique because adoption of
modern technology requires huge capital which is deficient. Moreover the workers unions oppose
the introduction of new technology as there is no social security against unemployment. But it limits
their competitive strength in the international market.
Indian economy is also technically backward. Modern and traditional techniques are seen
side by side in different sectors of the economy. It has affected the productivity in the economy
which is very low compared with the developed economies.
10. High Density of Population
The number of persons living per sq.km is called as density of population. It is very high in the
developing countries due to the large size of the population. The density of population of the world
was 50 per sq.km in 2011. High density of population puts pressure on the available natural resources
Economic Growth and Development 17

in the given area of land. The density of population in India was 382 per sq.km in 2011 whereas it
was 145 in China, 33 in USA, 4 in Canada and 3 in Australia.
11. Dual Economy
Developing economies are characterised by dualism. It refers to that condition of an economy
where two sectors (Advanced and backward or modern and traditional sectors) exist side by side.
There are different types of dualism. They are (a) Technological Dualism (b) Social Dualism
(c) Financial dualismAccording to Benjamin Higgins, in the developing countries technically
advanced and primitive sectors exist side by side which is called as technological dualism. In the
opinion of Boeke the society in the developing countries is split into two parts upper and lower,
which is known as social dualism. According to Myint, large unorganised financial market and a
small organised financial market exist side by side, in the developing countries. This is known as
financial dualism.
The modern sector makes use of the advanced technology which increases the productivity
and production. On the other hand the traditional sector follows the obsolete methods of production.
This causes income inequalities in the society. Therefore technological dualism leads to social dualism.
Indian Economy is also characterised by the dualism, the product and factor markets in India are
divided with different degrees of imperfection. So the product prices and factor prices are not same
for all groups of buyers and sellers. Technological dualism is prevalent in the Indian economy. The
industrial sector uses the modern technology and the agriculture sector still follows old methods of
production.
12. Price Instability
The price instability is also a basic feature of the developing countries. In almost all developing
countries like India there is continuous price instability because of shortage of essential commodities
and gap between consumption and production. Rising inflation poses a problem to maintain the
standard of living of the common people as their incomes hardly increase regularly.
From the above discussion it is clear that the developing countries have different characteristic
features which separate them from the developed countries. Besides the above mentioned factors,
the developing countries are also characterised by inadequacy and insufficiency of technical education
which is an important factor of economic development. The means of transport and communication
are not well developed. Financial and banking system which provides capital for industry and trade
is inadequate. Apart from the above, the unfavourable institutional set up and weak political leadership
are responsible for their backwardness.
Indian economy is typical example of a developing economy. After Independence, with the
implementation of planning strategy the economy has got a clear direction and it is on the right path
 18 Economics
of development. The new economic reforms which were introduced in early 1990s have stimulated
the economy to record faster growth rate which is some times higher than that of the developed
countries.
India is emerging as one of the largest markets in the world. According to World Bank data
in 2011, in purchasing power parity terms, India was the third largest economy in 2011 behind
America and China and it is estimated that it will occupy the second place by 2050 (only behind
China).
Economic Growth and Development 19

Model Questions
I. Write an essay on the following questions
1. Explain the characteristic features of developed countries.
2. India is a developing country –discuss.
3. Explain the features of developing countries with special reference to India.
II Write the answers briefly for the following questions.
1. Differentiate between economic growth and development.
2. Explain the determinants of economic development ?
III Write the answers in one or two sentences.
1. Economic growth
2. Economic development
3. Per capita income
4. Planning commission’s definition of a developing country.
5. Human capital
6. World bank’s classification of world countries
7. Dual Economy
 20 Economics
Glossary
1. Economic Growth : Economic growth refers to an increase in a country’s real
output of goods and services
2. Economic Development : Economic development refers to not only economic growth
but also progressive changes in the socio economic
structure of a country.
3. Per capita Income : The income per head per year is called per capita income.
It is obtained by dividing the national income with
population of the country.
National Income
Per capita Income: =
Population
4. Human Capital : Expenditure on education, training, skill formation,
research and improvement in health is called human capital
5. Dual Economy : An economy where both technically advanced and
technically primitive sectors exist side by side is called as
dual economy.

References
1. Ruddar Dutt and K.P.M. Sundaram, Indian Economy
2. Misra & Puri, Problems of Indian Economy
3. R.C. Agarwal, Economics of Development and Planning (Theory and practice)
4. K.K. Dewett, Modern Economic theory.
5. Uma Kapila, Indian economy - Performance and Policies.
6. Govt. of India, Economic Survey – 2014-15.
7. Telugu Academy, Bharata Aarthika Vyavasta Samasyalu
 CHAPTER
2
POPULATION AND
HUMANRESOURCESDEVELOPMENT
2.4 Occupational distribution of population of
India
2.0 Introduction 2.5 Meaning of Human Resources Development
2.1 Theory of Demographic Transition 2.6 Role of Education and Health in Economic
2.2 World Population Development
2.3 Causes of rapid Growth of population in 2.7 Human Development Index (HDI)
India Model Questions
Glossary

2.0 Introduction
The study of population and human resource development is very important in the process of
economic development. It is particularly important because human beings are not only instrument of
production but also end users. India and many other third world countries are now passing through
the phase of population explosion.
2.0.1 Population
Population of India means the total number of people living in India. Population is very
essential for the growth of country.
2.0.2 Advantages of Population
1. Population provides work force to produce goods and services.
2. Population provides market for the products that are produced.
3. Population promotes innovative ideas.
4. Population promote division of labour and specialisation