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INDIAN ECONOMY
– UNDER DEVELOPMENT
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“Man is guided by the stomach. He walks and the stomach goes first and
the head afterwards. Have you not seen that? It will take ages for the head to
go first”. – Swami Vivekananda.
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An under developed economy is characterized by the existence in greater
or lesser degree of unutilized or underutilized man power on one hand and of unexploited
natural resources on the other.
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(Note: the key words underutilization, Human resources and Natural
resources).
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What is underdeveloped economy?
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The countries in which the per capita income is low when compared with
the per capita real incomes of the USA, Canada, Australia and Western Europe. – (United Nations, Measure for the Economic
Development of Underdeveloped Countries).
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Later the words underdeveloped economy are replaced with ‘Developing
Economies’.
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Hence, the developing economies signifies that though still
underdeveloped the process of development had been initiated.
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The World Development Report (released by the World Bank in 2005), classified
the countries in the basis of GNI (Gross National Income) per capita.
·
Low Income Countries - < or = $765
·
Middle Income Countries – between $765 and $9385
·
High Income countries - $9386 or more
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The developing economies comprise about 85 percent of the population and
20 percent of the World GNI.
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The High income countries comprise 15 percent of the population and
account for 80 percent of the World GNI.
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ü Are all
the high income countries are necessarily developed countries?
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The answer may be ‘No’, the oil exporting countries have high per capita
income but this is mainly due to their exports of oil.
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The problem of development is mainly the problem of
·
Per capita levels of living
·
Poverty
·
Prosperity
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THE
CHARACTERISTICS OF DEVELOPING ECONOMY:
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Low per capita income
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This is distinguished on the basis of low per capita income.
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The per capita income is not the only indicator of the under developed
economy, but it is the most significant element for comparison of different
economies.
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The existence of mass poverty. This is a cause and consequence of the
low development.
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Mass poverty is because of low resources base of the poor.
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The poor own a very little portion form the land, capital, and other
property.
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Poor level of education. The low resource base inhibits them from giving
education.
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Unskilled employment: Since there is a block in the education the
children of the poor by and large are engaged in unskilled labor.
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Meager wages.
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Inequality in the distribution of assets leads to unequal distribution
of income and opportunities.
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Obsolete methods of production and exploitative social structure.
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BASIC
CHARACTERISTICS OF THE INDIAN ECONOMY:
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Note: Indian economy is a developing economy.
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Low per capita income
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A high proportion of working population is engaged in agriculture
(primary producing economy)
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Heavy population pressure: high level of birth rate coupled with the
falling level of death rates. The fast rate of growth of population
necessitates a high rate of economic growth in order to maintain the same
standard of living of the population. Hence the basic requirements rise, that
imposes greater economic burdens and finally the society has to make a much
greater effort to initiate the process of growth.
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Note: The rapid growth of labor force creates a high supply of labor
than its demand leading to unemployment.
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Prevalence of chronic unemployment and under employment: In India the
unemployment is structural and is the result of a deficiency of capital. The
Indian economy does not find sufficient capital to expand its industries to
such an extent that the entire labor force is absorbed.
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Low rate of capital formation: the amount of available capital per head
is low.
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Maladministration of wealth: More than 50 percent of the bottom
households own just 10 percent of the total assets.
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Poor Capital of human capital: Illiteracy retards the growth. A minimum
level of education is necessary to acquire the skills and to comprehend social
problems.
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Prevalence of low level of technology:
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Low level of living of the average Indian:
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The socio-economic indicators of consumption are characteristic of
underdeveloped economy: Per capita intake calories, fats and proteins,
population per TV and number of population per physician etc
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MAJOR ISSUES
OF DEVELOPMENT:
Note: India is underdeveloped, though the
country is considered to be a developing economy. The coexistence of Poverty
and affluence (wealth, rich) should be taken into consideration for understanding
the major issues of development.
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Low per capita income and low rate of economic growth
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High proportion of people below the poverty line
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Low level of productive efficiency due to inadequate nutrition and
malnutrition
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Imbalance between population size, resources and capital
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Problems of unemployment
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Instability of output of agriculture and related sectors
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Imbalance between heavy goods industry and wage goods
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Imbalance in distribution and growing inequalities
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THE
ESSENTIALS (DETERMINANTS) OF ECONOMIC DEVELOPMENT:
“The development is not governed in any
country by economic forces alone and more backward the country the more this is
true. The key to development lies in men’s minds, in the institutions in which
their thinking finds expression and in the play of opportunities on ideas and
institutions” – Cairncross.
The economic development implies the process
of securing levels of productivity in all sectors of economy.
The economic development depends on both
economic and non economic factors.
NON ECONOMIC
FACTORS:
The economic development is also a process of
stepping up the rate of capital formation. The capital is necessary and not a
sufficient condition of economic development which also depends on non economic
factors like social attitudes, political conditions, human endowments and
efficient government
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Social Climate
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Religious institutions
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Political institutions and conditions
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Education
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Efficient government
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Human endowments
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ECONOMIC
FACTORS:
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Capital formation:
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Capital-output ratio
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Growth of population
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Building human capital
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CAPITAL
FORMATION.
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This is the most important factor for the economic development. This is
a necessary step for the community to accumulate a large stock of machines,
tools and equipments.
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Capital formation also demands the skill formation otherwise the tools
will be unutilized and hence the lower productivity.
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The larger the capital the greater the productivity of labor
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The volume of commodities and services that can be turned out to be
higher with the same effort
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For achieving the rapid development speed capital formation is a must.
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This many not be possible through the domestic savings, hence, inflow of
the foreign capital becomes necessary.
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India decided to permit the FDI (Foreign Direct Investment) with a view
to imbibing advanced technology.
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CAPITAL-OUTPUT
RATIO:
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This means the number of units of capital that are required in order to
produce one unit of output.
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The capital-output ratio reflects the productivity of the capital in
various sectors of the economy at a point of time.
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This varies from industry to industry and economy to economy.
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The basic industries (iron and
steel, machine tools, engineering and metallurgy) are more capital intensive
than consumer goods industry.
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The fruits of the development cannot be calculated totally in the
beginning stage of the development of the economy of a country.
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After a period of time a little increase in the capital formation brings
about large increments in the output.
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Hence the rate of growth of national income in an economy depends upon
the rate of investment and the capital-output ratio.
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Rate of growth of National Income = Investment income ratio /
capital-output ratio.
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GROWTH OF
POPULATION:
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If the population increases rapidly the benefits are thinly experienced.
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Hence there is a need for the family limitation or controlling the
population growth rate.
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But as the medical technology increases the numbers of deaths also come
down.
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At the same time as the standard of living increases the birth rate is
also stabilized.
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This should be seen that the economic development and the population
growth are inter connected.
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BUILDING HUMAN CAPITAL:
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This can be done by focusing on education and health.
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This leads to the increasing of the productivity of the economy.
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By concentrating on reducing the birth rate the country can make more
availability of the resources per child.
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The country can also increase more on the skill development.
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