ECONOMIC GROWTH The term economic growth is defined as the process

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

ECONOMIC DEVELOPMENT Economic development is defined as a sustained

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

Economic Growth Economic development

 Increase in real GDP  Economic growth +

 Higher national  Increase in living standards

income/output
 Increase in educational
standards
 Improved health care

 Improved infrastructure

 Diversification of economy

FACTORS AFFECTING ECONOMIC GROWTH The process of economic growth is a

highly complex phenomenon and is influenced by numerous and varied factors
such as political, social and cultural factors. These factors are as follows:
A. Economic Factors
1. Natural Resources: The principal factor affecting the development of an
economy is the natural resources. The natural resources include the land area and
the quality of the soil, forest wealth, good river system, minerals and oil
resources, good climate, etc. For economic growth, the existence of natural
resources in abundance is essential. A country deficient in natural resources may
not be in a position to develop rapidly. However, the availability of rich natural
resources are a necessary condition for economic growth but not a sufficient one.
In less developed countries, natural resources are unutilized, underutilized or
misutilised. This is one of the reasons of their backwaFactors

On the otherhand countries such as Japan, Singapore etc. are not endowed with
abundant natural resources but they are among the developed nations of the
world. These countries have shown commitment towards preserving the available
resources, putting best efforts to manage the resources, minimizing waste of
resources etc.
2. Capital Formation: Capital formation is another important factor for
development of an economy. Capital formation is the process by which a
community’s savings are channelised into investments in capital goods such as
plant, equipment and machinery that increases nation’s productive capacity and
worker’s efficiency thus ensuring a larger flow of goods and services in a
Country. The process of capital formation implies that a community does not
spend whole of its income on goods for current consumption, but saves a part of
it and uses it to produce or acquire capital goods that greatly add to productive
capacity of the nation.
3. Technological Progress: Technological progress is a very important factor in
determining the rate of economic growth. Technological progress mainly implies
the research into the use of new and better methods of production or the
improvement of the old methods. Sometimes technical progress results in the
availability of natural resources. But generally technological progress results in
increase in productivity. In other words, technological progress increases the
ability to make a more effective and fruitful use of natural and other resources for
increasing production. By the use of improved technology it is possible to have
greater output from the use of given resources or a given output can be obtained
by the use of a smaller quantity of resources. The technological progress improves
an ability to make a fuller use of the natural resources e.g. with the aid of power –
driven farm equipment a marked increase has been brought about in agricultural
production. The USA, UK, France, Japan and other advanced industrial nations
have all acquired the industrial strength from use of advanced technology. In fact
economic development is facilitated with the adoption of new techniques of
production.
4. Entrepreneurship:- Entrepreneurship implies an ability to find out new
investment opportunities, willingness to take risks and make investment in the
new and growing business units. Most of the underdeveloped countries in the
world are poor not because there is shortage of capital, weak infrastructure,
unskilled labor and deficiency of natural resources, but because of acute
deficiency of entrepreneurship. It is, therefore, essential in the under-developed
nations to create climate for promoting entrepreneurship by emphasizing
education, new researches, and scientific and technological developments 4.
Human Resources Development: A good quality of population is very important in
determining the level of economic growth. So the investment in human capital in
the form of educational and medical and such other social schemes is very much
desirable. Human resource development increases the knowledge, the skills and
the capabilities of the people that increase their productivity.
5. Population Growth: Labor supply comes from population growth and it
provides expanding market for goods and services. Thus, more labor produces
larger output which a wider market absorbs. In this process, output, income and
employment keep on rising and economic growth improves. But the population
growth should be normal. A galloping rise in population retards Economic
progress. Population growth is desirable only in a under-populated country. It is,
however, unwarranted in an overpopulated country like India.
6. Social Overheads: Another important determinant of economic growth is the
provision of social overheads like schools, colleges, technical institutions, medical
colleges, hospitals and public health facilities. Such facilities make the working
population healthy, efficient and responsible. Such people can well take their
country economically forward.

Non-Economic Factors
Non-Economic factors that include socio-economic, cultural, psychological and
political factors are also equally significant as are economic factors in economic
development. We discuss here some of the essential non economic factors which
determine the economic growth of an economy.
1. Political Factors: Political stability and strong administration are essential and
helpful in modern economic growth. The stable, strong and efficient government,
honest administration, transparent policies and their efficient implementation
develop confidence of investors and attracts domestic as well as foreign capital
that leads to faster economic development.
2. Social and Psychological Factors: Social factors include social attitudes, social
values and social institutions which change with the expansion of education and
transformation of culture from one society to the other. The modern ideology,
values, and attitudes bring new discoveries and innovations and consequently to
the rise of the new entrepreneurs. The outdated social customs restricts
occupational and geographical mobility and thus pose an obstacle to the
economic development.
3. Education: It is now fairly recognized that education is the main vehicle of
development. Greater progress has been achieved in those countries, where
education is wide spread. Education plays an important role in human resource
development, improves labor efficiency and removes mental block to new ideas
and knowledge thus contributes to economic development.
4. Desire for Material Betterment: The desire for material progress is a necessary
precondition for economic development. The societies that focus on self-
satisfaction, self-denial, faith in fate etc. limit risk and enterprise and thus keep
the economy backward.

SUSTAINABLE DEVELOPMENT
Sustainable development is development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.
Sustainable development includes the protection of future economic growth and
future development. In other words, it means a better quality of life for everyone,
now and for generations to come. Sustainable development includes the
protection of future economic growth and future development. Growth is
essential, but sustainable development requires it to be different. It must become
more concerned about the physical environment not only to present generation,
but to the future generation also. It means that the current consumption cannot
be financed for long by increasing economic debt and ecological imbalance which
future generation will pay. Sustainable development constantly seeks to achieve
social and economic progress in ways that will not exhaust the earth’s finite
natural resources.
Sustainable development is a process of development in which economic and
other policies are designed to bring about development which is economically,
socially and ecologically sustainable. The concept thus is pro-people, pro-job and
pro-nature. It gives highest priority to poverty reduction, productive employment,
social integration and environmental regeneration.

HUMAN DEVELOPMENT
According to the United Nation’s Development Programme (UNDP), human
development may be defined as “a process of enlarging people’s choices.” At all
levels of development, the three essential choices for people include to live a long
and healthy life, to acquire better knowledge and to have access to resources
needed for a decent standard of living. If these essential choices are not available,
many other opportunities to improve the quality of life will remain inaccessible.
Human development has two dimensions: acquiring human capabilities and the
use of these acquired capabilities for productive, leisure and other purposes. The
benefits of human development go far beyond the expansion of income and
wealth accumulation because people constitute the very essence of human
development.
Human development is about much more than economic growth. The economic
growth focuses on the improvement of one option i.e. income or product while
human development focus on enlarging all human options including education,
health, clean environment and material well being. Thus, the options available for
improving people’s lives are influenced by the quality of economic growth in its
wider sense, and the impact is by no means confined to quantitative aspects of
such growth. In other words, economic growth needs to be seen as a means,
albeit an important one, and not the ultimate goal, of development. Income
makes an important contribution to human well-being, broadly conceived, if its
benefits are translated into more fulfilled human lives. But the growth of income
is not an end in itself. It is the quality of growth, not its quantity alone, which is
crucial for human well-being.
Thus, the concept of human development, is concerned mainly with enabling
people to enjoy a better life as the ultimate goal of human endeavor. Highlights
that this goal cannot be achieved solely through improvements in income or
material well-being.
As the 1996 Human Development Report put it, growth can be jobless, rather
than job creating; ruthless, rather than poverty-reducing; voiceless, rather than
participatory; rootless, rather than culturally enshrined; and futureless, rather
than environment-friendly. Economic growth which is jobless, ruthless, voiceless,
rootless and futureless is not conducive to human development. The lack of
income or income poverty is only one aspect of human impoverishment;
deprivation can also occur in other areas– having a short and unhealthy life, being
illiterate or not allowed to participate, feeling personal insecurity, etc. Human
poverty is thus larger than income poverty.