Economic Growth & Development in India

The two words ‘growth’ and ‘development’ were often used interchangeably in economic discussion.

As soon as ‘development eco­nomics’ emerged as a distinct field of study after the World War II, it ‘had the appearance of being a bastard child of growth economics’ and, in fact, this child did not differ from what could be expected from a genuine ‘son of growth economics’. But, technically speak­ing, they are not the same.

To a layman, these two terms appear to be synonymous. How­ever, in the 1950s and 1960s, economists drew a line of demarcation between economic growth and economic development. True enough, the concept of economic development is broader than economic growth. Develop­ment is taken to mean ‘growth plus change’, whereas economic growth means growth only quantitative expansion of an economy. Economic growth is, thus, a quantitative con­cept, while economic development is a quali­tative concept. C. P. Kindleberger says that growth involves focusing on height or weight while development focuses on the change in functional capacity.

Economic growth is defined in positive terms. It is measured by the sustained increase in real, national or per capita income of a nation over time. Economic growth is usually measured in terms of an increase in real GNP or GDP over time or an increase in income per head over time. Growth is desirable as it ena­bles a society to consume more goods and services.

That is why growth is considered to be the basis of advancing real living standards or human welfare. At the same time, it is also true that growth does not necessarily lead to an increase in human welfare. Economic de­velopment is more fundamental than eco­nomic growth.

Economic growth figure does not give us correct assessment of an economy for the following reasons:

First, economic growth is associated with an increase in GNP/GDP per capita. But per head GNP does not, by itself, constitute or measure welfare or success in development. This is because per capita income does not give any information about income distribution. It is observed that despite high rate of growth, some of the countries experience high inci­dence of poverty and unemployment.

Secondly, economic growth does not talk about the quality of life. In poor developing countries, people end themselves at low level of literacy, low standards of health and nutri­tion, etc. Miseries arising from lack of food and shelter do not get reflected in the concept of economic growth.

lThirdy, economic growth does not deal with environmental issues. In the process of achieving higher economic growth, environ­mental considerations like depletion of renew­able natural resources, air pollution, etc., are given little weightage. These aspects have an important bearing on the economic develop­ment of a country in the long run. Desire for higher and higher economic growth is associ­ated with environmental damages. It is eco­nomic development that cares for environ­mental issues.

It is, thus, obvious that economic develop­ment involves something more than economic growth. In fact, there are certain qualitative dimensions in the process of development that are conspicuous by their absence in the growth or expansion of an economy. Economic devel­opment implies both more output and changes in the technical, institutional arrangements by which it is produced, and a change in attitudes and values.

“Development concerns not only man’s material needs but also improvement of the social conditions of his life. Develop­ment is, therefore, not only economic growth but growth plus change—social, cultural and institutional as well as economic. Develop­ment is, thus, not purely an economic phe­nomenon; it has to be conceived of as a multi­dimensional process.”

Naturally, economic development is a value-based concept. It should include not only the acceleration of economic growth but also the reduction of inequality and eradication of poverty, increase in employment opportunities and welfare of the masses, etc.

However, economic development may mean more. Economic development must en­compass human development. Amartya Sen defines economic development in terms of ‘en­titlement’ and ‘capability’. Entitlement refers to the set of alternative commodity bundles that an individual can command through the totality of rights and obligations that he or she faces.

Thus, entitlements of people generate ‘capabilities’. Entitlements of people do not only depend on their incomes but also on a host of power relations in a society, the spa­tial distribution of resources in a society (like facilities of health care and schooling) and what individuals can accumulate from such supplied by the state. ‘Capability’ represents a person’s freedom to achieve various func­tioning combinations. Thus, the notion of capability is essentially one of freedom the range of options a person has in deciding what kind of life he or she wants to pursue.

Poverty, according to Amartya Sen, is a kind of ‘capability deprivation’. Sen says that economic development should be interpreted as a process of expansion of the freedoms that people enjoy. Important areas of unfreedom that people face are famine and undernourish­ment, mass illiteracy, poor state of health of people, lack of shelter and other basic needs, economic insecurity, denial of basic civil and political liberty, etc.

Through the policies of expansion of human capabilities, development processes can be initiated. That is why it is said that the basic objective of development is the process of expansion of entitlements and human capa­bilities. That is to say, how GNP growth is used to improve human capabilities and, in turn, how people utilise their capabilities is eco­nomic development.

Amartya Sen, thus, emphasises that, in­stead of concentrating on GNP or GDP, development economics should take into ac­count both entitlements and capability expan­sion. He argues that income does not neces­sarily address the nature of entitlement. Tak­ing a cue from the Chinese famine (1958-1961) as well as the Bengal famine (1943), he em­phatically demonstrated that famines, in gen­eral, were to be attributed to the entitlement failure rather than the shortage of food. De­spite abundant supplies in food, people had to suffer miserably from hunger and famine in Bengal due to entitlement failure in collect­ing food from the market. Famine is one source of unfreedom.

 “Development requires the re­moval of major sources of unfreedom.” The basic condition for economic development are the freedoms from hunger and famine, malnu­trition, deficient schooling, poverty, poor health, economic insecurity, denial of civil and political rights, social inequalities, etc. These human goals of economic development as emphasised by Amartya Sen have brought about a change in development thinking at least since the 1970s.

Amartya Sen, carrying on his value-loaded development economics, talks on social jus­tice. He says that undernourishment of chil­dren, absence of opportunities of basic school­ing, lack of entitlement of basic medical at­tention, particularly to the underprivileged of our society, etc., are nothing but social injus­tices.

Since most of these facilities—meant for all Indians crowd out the underdogs through the dominant class or partners of the society. This kind of gross injustice is nothing but denial of development or ‘exclusive de­velopment’. Thus, in the development dis­course, social justice a more normative con­cept needs to be provided to all. And, that is development.

The two words ‘growth’ and ‘development’ were often used interchangeably in economic discussion.

As soon as ‘development eco­nomics’ emerged as a distinct field of study after the World War II, it ‘had the appearance of being a bastard child of growth economics’ and, in fact, this child did not differ from what could be expected from a genuine ‘son of growth economics’. But, technically speak­ing, they are not the same.

To a layman, these two terms appear to be synonymous. How­ever, in the 1950s and 1960s, economists drew a line of demarcation between economic growth and economic development. True enough, the concept of economic development is broader than economic growth. Develop­ment is taken to mean ‘growth plus change’, whereas economic growth means growth only quantitative expansion of an economy. Economic growth is, thus, a quantitative con­cept, while economic development is a quali­tative concept. C. P. Kindleberger says that growth involves focusing on height or weight while development focuses on the change in functional capacity.

Economic growth is defined in positive terms. It is measured by the sustained increase in real, national or per capita income of a nation over time. Economic growth is usually measured in terms of an increase in real GNP or GDP over time or an increase in income per head over time. Growth is desirable as it ena­bles a society to consume more goods and services.

That is why growth is considered to be the basis of advancing real living standards or human welfare. At the same time, it is also true that growth does not necessarily lead to an increase in human welfare. Economic de­velopment is more fundamental than eco­nomic growth.

Economic growth figure does not give us correct assessment of an economy for the following reasons:

First, economic growth is associated with an increase in GNP/GDP per capita. But per head GNP does not, by itself, constitute or measure welfare or success in development. This is because per capita income does not give any information about income distribution. It is observed that despite high rate of growth, some of the countries experience high inci­dence of poverty and unemployment.

Secondly, economic growth does not talk about the quality of life. In poor developing countries, people end themselves at low level of literacy, low standards of health and nutri­tion, etc. Miseries arising from lack of food and shelter do not get reflected in the concept of economic growth.

Thirdly, economic growth does not deal with environmental issues. In the process of achieving higher economic growth, environ­mental considerations like depletion of renew­able natural resources, air pollution, etc., are given little weightage. These aspects have an important bearing on the economic develop­ment of a country in the long run. Desire for higher and higher economic growth is associ­ated with environmental damages. It is eco­nomic development that cares for environ­mental issues.

It is, thus, obvious that economic develop­ment involves something more than economic growth. In fact, there are certain qualitative dimensions in the process of development that are conspicuous by their absence in the growth or expansion of an economy. Economic devel­opment implies both more output and changes in the technical, institutional arrangements by which it is produced, and a change in attitudes and values.

“Development concerns not only man’s material needs but also improvement of the social conditions of his life. Develop­ment is, therefore, not only economic growth but growth plus change—social, cultural and institutional as well as economic. Develop­ment is, thus, not purely an economic phe­nomenon; it has to be conceived of as a multi­dimensional process.”

Naturally, economic development is a value-based concept. It should include not only the acceleration of economic growth but also the reduction of inequality and eradication of poverty, increase in employment opportunities and welfare of the masses, etc.

However, economic development may mean more. Economic development must en­compass human development. Amartya Sen defines economic development in terms of ‘en­titlement’ and ‘capability’. Entitlement refers to the set of alternative commodity bundles that an individual can command through the totality of rights and obligations that he or she faces.

Thus, entitlements of people generate ‘capabilities’. Entitlements of people do not only depend on their incomes but also on a host of power relations in a society, the spa­tial distribution of resources in a society (like facilities of health care and schooling) and what individuals can accumulate from such supplied by the state. ‘Capability’ represents a person’s freedom to achieve various func­tioning combinations. Thus, the notion of capability is essentially one of freedom the range of options a person has in deciding what kind of life he or she wants to pursue.

Poverty, according to Amartya Sen, is a kind of ‘capability deprivation’. Sen says that economic development should be interpreted as a process of expansion of the freedoms that people enjoy. Important areas of unfreedom that people face are famine and undernourish­ment, mass illiteracy, poor state of health of people, lack of shelter and other basic needs, economic insecurity, denial of basic civil and political liberty, etc.

Through the policies of expansion of human capabilities, development processes can be initiated. That is why it is said that the basic objective of development is the process of expansion of entitlements and human capa­bilities. That is to say, how GNP growth is used to improve human capabilities and, in turn, how people utilise their capabilities is eco­nomic development.

Amartya Sen, thus, emphasises that, in­stead of concentrating on GNP or GDP, development economics should take into ac­count both entitlements and capability expan­sion. He argues that income does not neces­sarily address the nature of entitlement. Tak­ing a cue from the Chinese famine (1958-1961) as well as the Bengal famine (1943), he em­phatically demonstrated that famines, in gen­eral, were to be attributed to the entitlement failure rather than the shortage of food. De­spite abundant supplies in food, people had to suffer miserably from hunger and famine in Bengal due to entitlement failure in collect­ing food from the market. Famine is one source of unfreedom.

 “Development requires the re­moval of major sources of unfreedom.” The basic condition for economic development are the freedoms from hunger and famine, malnu­trition, deficient schooling, poverty, poor health, economic insecurity, denial of civil and political rights, social inequalities, etc. These human goals of economic development as emphasised by Amartya Sen have brought about a change in development thinking at least since the 1970s.

Amartya Sen, carrying on his value-loaded development economics, talks on social jus­tice. He says that undernourishment of chil­dren, absence of opportunities of basic school­ing, lack of entitlement of basic medical at­tention, particularly to the underprivileged of our society, etc., are nothing but social injus­tices.

Since most of these facilities—meant for all Indians crowd out the underdogs through the dominant class or partners of the society. This kind of gross injustice is nothing but denial of development or ‘exclusive de­velopment’. Thus, in the development dis­course, social justice a more normative con­cept needs to be provided to all. And, that is development.

Top 5 Measure & Growth & Development of Indian Economy

Measure # 1. Capital Formation:

Capital plays a stra­tegic role in the process of development of a coun­try, at least in its initial stages. According to the Harrod-Domar Model, economic growth depends directly on the saving ratio and inversely on the incremental capital-output ratio.

So, an LDC must generate a high rate of saving—so as to accelerate the rate of capital formation. People must be able and willing to devote a substantial portion of their production to building capital rather than to present consumption.

There is wide agreement among economists that lack of capital is the biggest obstacle to growth. No plan for development is likely to suc­ceed unless adequate supply of capital is forth-coming. A country must save at least 25-30% of its income every year in order to achieve a steady growth of national and per capita incomes. Japan has achieved this target in the post-Second World War (1939-45) period. Germany, Italy, Australia and Finland have also succeed in saving 20% or more of their national income and have achieved high rates of growth in recent years

Measure # 2. Reducing Population Growth:

A second way of accelerating growth is by striking a bal­ance between the birth rate and the death rate. If this can be done, the population problem can be solved and the standard of living can be improved. Over-population is-often seen as a growth-retarding factor. Thus, if a country can manage to use its manpower properly, it will certainly prove to be an important factor in development.

Measure # 3. Technological Progress:

It has been sta­tistically established that the level of technical know-how has a direct bearing on the pace of de­velopment. With the advance of science and tech­nological knowledge, people discover more and more sophisticated techniques of production which gradually raise the levels of productivity in the key areas of the economy. Technological progress may refer to either product innovation (develop­ment of a new production) or process innovation (development of a new way of producing an old product at lower cost).

According to J. Schumpeter, technological progress has been the engine of growth in developed countries. R. M. Solow and D. Robertson have observed that this has been the most important source of growth in the USA between 1909 and 1949. This is called ‘the residual factor’ of growth. It has the effect of raising productivity of resources.

Thus, it is essential for social and economic systems of a country to generate a high rate of scientific discovery and technological change in order to avoid the effects of diminishing returns and exhaustible resources.

Measure # 4. Better and Full Utilisation of Resources:

Finally, an economy has to operate at its potential capacity or very close to it. The failure to use pro­ductive capacity fully has been one of the chief reasons for the inability of the economy to achieve its full growth potential. While, in developed capi­talist countries, the capacity of the economy to produce outruns the ability of consumers to buy the output, in LDCs like India purchasing power either does not keep pace with the potential growth of the economy or it declines, thus creating a gap between the actual level of spending and that re­quired for full use of productive capacity.

Measure # 5. The Desire to Grow:

Growth is not a me­chanical process. It is a human enterprise and de­pends ultimately on the skill, quality and attitudes of the people. Without people’s participation growth is unlikely to occur.