ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT pea titem ely trar ties 1.1 1.2 Concept of Economic Growth Concept of Economic Development 1.2.1 Development as a Multi-dimensional Process 1.2.2 Three Core Values of Development 1.2.3 Amartya Sen’s Capability Approach 1.3 Economic Growth versus Economic Development 1.4 Indicators of Economic Growth 1.4.1 Real National Income 1.4.2 Real Per Capita Income 1.5 Human Development— Meaning and Measurement 5.1 Meaning and Measurement Human Development Index (HDI) and Inequality-adjusted HDI (HDI) : * Summary a * Review Questions 1.1 CONCEPT OF ECO Economic growth has been one There is no unanimity on the ex Different economists have. definitions vary in es Economic growth underdeveloped substnantiIndian Economy g a accumulation, ete. The general effect of the p tal nt in skill, capi ppert iver ent growth of an economy's nat Pp ; is an increase in aggregate output of goods and Services riod of time. Simon Kuznet in his articale “Modern Economic Growth - Fj to Simo ; . F * (1971), economic growth isa long term rise in the cay tions grow ran cy asingly diversified economic goods and services to its popul; ted on reduction of mass poverty asacrucial test ofeconomie © kil and Brahmananda have defy an economy’s GNP increase over a improveme' is reflected in the Economic growth , 7 in a country during a given p' According and Reflec to supply incres bp Viner insis' Le Meier, Baldwin, C.N. Va owth “as a process whereby owth nomic id of time n - wll nic growth implies a sustained expansion in economic activities riculture, industry, etc.) over a long period of time. When an economy ns such a stage of growth, it does not require the assistance of extemal In terms of Rostow’s theory of growth, this stage comes after the Economy is able to generate a continuous process of growthto — agencies. take off stag a " ” nomentum generated by the initial ‘Big Push”. ndicators of economic growth are national income at constant prices, real per capita income and per capita real gross domestic product. Out of these, real per capital income is the most reliable indicator of economic growth. Economig growth is associated with the prosperous life of citizens of that country in h NNP or GNP has registered an increase in real terms. What is importa 1.2 CONCEPT OF ECONOMIC DE 1.2.1. Development as a Multi- di Till 1960, the term economic developm growth in economic literature. But fror nomic growth. Economie d in the overall economic activity and development in some parts of 66 t does not mean that the whole development includes and continuously lead the activity, According to MieEconomic Growth and Economic Development Third World, “Development must, therefore, dimensional proce 13 be conceived as a multi - ss involving major changes in social structure, popular attitudes and institutions as well as acceleration of economic growth, reduction of inequality and eradication of absolute poverty,” According to Mahbub-ul-Haq, goals of economic development are: (a) Reduction and elimination of malnutriton, unemployment and inequalities. (b) Elimination of diseases and illiteracy, 1.2.2” Three Core Values of Development There are three core values of development as given by Prof Denis Goulet that will make life better, According to Prof Goulet, at least three basic components or core values should serve as a conceptual basis and practical guidelines for understanding the “inner” meaning of development. These core values — sustenance, self-esteem and freedom ~ represent common goals sought by all individuals and societies. They relate to fundamental human needs that find their expression in almost all societies and cultures at all times. They are explained as follows: 1. Sustenance Life of human beings can be sustained when basic needs are fulfilled. These include food, shelter, health, protection, education, clothing, etc. In case these basic needs are absent or in inadequate supply then it means, “absolute a —_ undervelopment’ exists 2. Self-esteem selfish interest. According to Jean Dreze and Amai esteem.” 3. Freedom From Sei Freedom from servitu Italso means that societ freedom, freedom o4 o's Capability Approach ” amartya Se , - a Sen maintains that development Is concerned with enjoy. According to him, developm lead and ae i with having more of income social concept concerned with various facets of | pt we like health, education, income, etc. An developm rt panies have good or constructive use of commodities produced, ECONOMIC GROWTH vs. nomic growth and economic development are ' nd economic terms which Amarty lives we » eos snly an economic CO ncept ECONOMIC DEVELO 1.3 The terms eco nterchangeably but they are technical a distinguished from each other. according to Kindleberger, “Economic growth means more pro but economic development includes more production as well as the technical and institutional changes which make more pro possible”. gives the comparison between economic growth and eco evelopment 4 Table 1.1 Comparison Between Economic Growth and_ Economic Development Economic Growth rrow concept which refers an increase in a country’s real 1. It is a comprehensive concept which includes economic gro and progresive changes in a economic, political, cultural a historical levels. 2. It is difficult to realise also involves such composition of ou of goods and services over cific period of time easily attained by ger resources and T productivity hes less significance to distribution of income, n unemployment and measurable as it includes only} nomic factors like supply of tock, capital-output ratio, cultural surplus, etc ;Neonemic Growth and Economic Development ws The indicators of economic growth | 5. The indicators of economic are real national income and real development are Physical Quality per capita income, Le., ifreal of tife Index and Human Development} national income rises, economic Index, i.e., if literacy rate or/and growth increases and vice versa. life expectancy rate rises then economic development rises and vice versa. 6. It is possible for an economy to have economic growth without economic development. 6. It is not possible to have economic development without economic growth, i.e., a substantial increase in an economy's national product is necessary before it can hope to expand its industries, financial institutions, trade, public utilities and government administration. 7. It is a major issue with under- developed countries who not only have to find their natural resources but also need to ensure quality of life to its people. Trisa concern of advanced countries,who have already developed their natural resources and have to effectively use them to avoid stagnation. 14 INDICATORS OFECO! 1.4.1 Real National Income ati der 5A National Income (NI) is the sum total of value of all final goods and services produced in a country during one year, calculated after making necessary OMIC GROWTH cet} adjustments. National income at constant prices is @ very useful index to measure the real or actual growth ofan economy. It is defined as the value of current output at base year prices. It is obtained by multiplying the goods produced in the current year with the prices prevail ing in the base year. National income at constant prices is also led income. Base year or constant year is a stable year. It) as one in which there were no natural ties like drought, epidemic or wars and the prices rer year. At present the base year in India calculates national income at constant »r net national product in 2009-2010¢ the values of all final goods and sei with prices prevailing in 2004-2005. : prices is:Price index of base year Is always taken to be 100. It shows percentage change in the price of current year compared to the price of the base year. fwhere j Base Year | Price index | This estimate is a reliable index of economic growth ofa country. Income at constant prices will increase only when there is rise in the output of goods and services in a country during a year. In other utput of final goods and services rises in a particular year and prices to be constant as given by base year, national income - constant p rise. It shows economic growth. A high rate of economic growth standard of living of people. Some reasons why real national income is used for measuring ec growth are: i) Itconcentrates on the performance of an economy as a whole. (ii) Arise in real National Income shows enlarged capacity of an i.e., the economy is in a better position to face an emergency I (iii) Real National Income figures given a fairly good idea about a consumption and investment goods. Limitations of real national income are: (i) It does not include growth of population. It does not indicate nature of investment, It ) It Joes not indicate product mix. (v)_ Itdoes not show exploitation of natural resources or poll ¥) It does not indicate the quality of production. (vi) Itisuseful in comparing the performance of two e different population base. 1.4.2 Real Per € apita Income Per Capita Income (P CI) is defined as the income economy. It is estimated by dividing national Per Capita Income =Economic Growth and Economic Development er Per Capital Income is calculated both at current and constant prices. Per Capita Income calculated at constant prices is called Real Per Capita Income. Real Per Capita Income is calculated by the formula: National Income at Constant Prices Real Per Capita Income = Mid-Year Population Real per capita income is a better indicator of economic growth as compared to real national income. It can be shown with a simple example. Suppose real national income grows by 5% and population also rises by 5% per annum, then how much is the economic growth? If real national income is taken as the indicator of economic growth, then economic growth rises by 5%. alternatively, if real per capita income is taken as the indicator of economic growth, then economic growth rises by 1% (since ce 5% real per capita income = =— = 1% per cap m o) the condition is that growth of real h of population. Also, real PCI 10 correctly assess For positive economic growth ofa country, national income should be more than the growtl is a better indicator of economic growth than PCI. Thus, t economic growth, convert statistics into real per capita income. Some reasons why real per capita income is used for measuring economic growth are: (i It includes the rate of popu lation growth, i.e., ifrate of population growth is high, real per capita income will be low. If real per capita income is rising then it implies that population growth rate is getting stabilised, which in turn implies economic growth. It shows availability of goods and services per head. It shows the standard of living of people in a country. living of people in different countries is known. Limitations of this index as a measure of economic growth are: (i) Itignores income distribution of the country. (ii) It does not take into account the significance of expectancy, education, health, ete. (iii) Itignores the effect of environmental pollution. (iv) It does not show product mix.lpeneetsihe Treeolont, i ee held rhetligen ce AY sneha EVELOPMENT—T! CONCEPT cap 3 a ii nt 1.5.1 Meaning and ae ioe Se s&s tivity in shaping development eq 18 1.5 HUMAND Human Development is thee and creative lives; and to engage al sustainably on a shared planet. According to Mahbub-ul-Haq in the First Human Develoninags 1990, human development was defined as a benees of widening e iiioes as well as raising the level of wellsherag achieved. development is a process of enlarging human choices what con social, cultural or political. The basic objective of development create an enabling environment in which people could enjoy long, h and creative lives. Twenty three years on, that vision retains a resonance. “People are the real wealth of a nation,” with these words the 1990 began a forceful case for a new approach to thinking above develop Mesmerised by the rise and fall of national income, there is tendency to eq human welfare with material wealth. The importance of GDP groy economic stability should not be understated: both are fundamental to s human progress, as is clear in many countries that suffer from their But the ultimate yardstick for measuring progress is people’s quality of | Real opportunity is about having real choices—the choices that come ¥ sufficient income, education, good health and living ina country that governed by tyranny. In the words of Amartya Sen in HDI “Development can be seen... as a process of expanding the real fi people enjoy.” ' According to HDR 2010, various dimensions ofhuman de (a) Empowerment Ccheth 3 (6) Sustainability and vulnerability (c) Human security (4) _ Perceptions of individual well being and (e) Civicand community well-being ( Decent work (g) Education, and (A) Health.Hp ~ "aun nop are Neto day “ oca ep teeitadts Ffty “Weal Economic Growth and Economic Tevelopment wis Oo 5.1.2 Human Development Index (HDI) and HDIReforms 1. Calculating HDI-According to HDR 1990 and HDR 2010 $ bw The HDI is a summary measure of himan development. It measures Pie average achievements in a country in three basic dimensions of human development: + 1. A Long and Healthy Life: It is measured by life expectancy at birth, 2. Knowledge: HDR 1990 measured it by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary gross enrollment ratio (with one-third weight). According to HDR 2010, access to knowledge is measured by: (i) Mean Years of Adult Education: It is the average number of years of education received in a life-time by people aged 25 years and older; and (ii) Expected Years of Schooling for Children of School-Entrance age: It is the total number of years of schooling a child of school- entrance age can expect to receive if prevailing patterns of age- specific enrolment rates stay the same throughout the child’s life. These new measure are used because a number of countries, especially those at the top of the HDI ladder, have achieved high levels of combined gross enrolment ratios and adult literacy rates. Mean years of adult education and expected years of schooling for children capture the concept of education better than the previous indicators and have stronger discriminating power across countries. These indicators are also better at capturing recent changes in education and school enrollment. However, as with the previous indicators, they do no assess quality of education. 3. A decent Standard of Living: HDR 1990 measured it by GDP per capita in purchasing power parity (PPP) terms in US dollars. HDR. 2010 measures standard of living by Gross National Income (G! per capita in PPP USS. It is aggregate income of an generated by its production and its ownership of. ete of population. While GDP is a measure of e reflect a country’s disposable income—some pr abroad, some residents receive remittances cases inbound aid flows may be size: these factors and is therefore a better income. DV INevy mibrt Ulead vOree Indian as the arithmetic mean of the d wi allowed for pa a b indices. This met! words, a low achievement in one " dimensions—In ee fet caloulation by hi gti a ievement compensated for in tl ’, multiplicative method of ae 2 Se dimension. This a aia geometric mean 0 dimen aggregations a b-stitutability be i f sul " i es the level of sud wall This aang pie per cent decline in, for ce oo decli prem same impact on the HDI as a rth, educatiot come. le summarises C} es made to the ducation or income. able 1.2 si ses chang HDR 2010 report. Pe aloul: IDI was © In past reports, oR RE Table 1.2 : Summary of HDI Reforms : HDR 1990 Dimensions | Indicators Transformation | Minimum| Maximum | value value 5 Life expecta- {Hea Life expecta- 7 | Health Bs nee en 85 ey et birth | aa} (ear) Knowledge | Adult 0 100 | Expected literacy rate sir i (%) schooling Combined 0 100 | Mean years gross of schooling enrollment ratio (%) | Standard of | GDP per 100 40,000 | GNI per | living capita capita | (PPP US$) (capped) (PPP US$) | Azsregation Arithmetic mean Source: HDR 2010 2. Calculating India’s HDI According to HDR 2016, India’s medium human devel i ae . lopment cate he: of 188 countries and areas, gory India is Table 1.3 reviews India’ 1980 to 2015, Indi years, mean years years of schoolin, by US $4719 ig increased during thea lL i )=—)—h)llU Keonomle Growth and Keonomie Development Lu Table 1.3) India's MDE Trends Based on Consistent Time Series Date, New Component Indicators and New Methodology Life expectaney Vxpected Meany GNI per at birth years of years of caplta sehooling schooling (PPPUS$) 1980 58 63 9 944 1985 16.9 1 24 1,082 1990 2 18 12%) 1995 596 49 1,510 2000 61s 4A 1810 2005 627 99 2401 2010 AA 103 3,337 2014 640 7 5499 2018 O83 7 5,063 Source: HDR 2016 3. Assessing Progress Relative to Other Countries Long-term progress can be usefully assessed relative to a country’s neighbours— both in terms of geographical location and HDI value, (a) In 1980, India, Pakistan and Bangladesh had close HDI values, During the period between 1980 and 2016, the three countries experienced dif- ferent degrees of progress toward increasing their HDIs. In 2016, India’s HDI rank is at 131, Pakistan’s is at 147 and Bangladesh’s is at 139. (b) India’s 2016 HDI value of 0,624 is near the average HDI value of 0.621 for countries in South Asia, India’s HDI value is below the average of HDI value of medium human development countries, which is 0.631. (d)_ In South Asia, India’s 2016 “HDI neighbours” i.e., countries which are close in HDI rank are, Bhutan and Bangladesh, which have HDIs ran of 132 and 139 respectively, (c) India’s neighbour Nepal and Pakistan have low human have HDI ranks of 144 and 147 respectively, Table 1.4 : India’s HDI Indicators for 2015 to Selected Countries and (c India | Bangladesh | Pakistan Bhutan South Asia Medium HDI Source: HOR 2016