Indian economy_ School of communciation Amrita University

8/14/2019 Indian economy_ School of communciation Amrita University

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Issues in Development

and Planning

1. Characteristics of UnderdevelopedCountries


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The economies of various countries has been broadly divided into two :Developed economiesUnderdeveloped or less developedeconomies (LDC) or developing economies.


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The characteristics of a developed economy are:Higher levels of aggregate outputHigher consumption standardMore savings and investmentHigher standard of living


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An LDC is characterized by:Low standard of living

High population growth rate.Abundant but underutilized natural resources.Low rate of capital formation

Continuous efforts to raise the standard of livingthrough a proper utilization of resources.


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1. Low per capita real income :This is due to a low level of national income

and a high level of population.Low level of national income is due to low

productivity, low saving and investment, backward technology and resources.There are many socio-economic reasons for high level of population.


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2. Population :India has a higher population growth rate ascompared to the developed countries.Three consequences of population explosion:

a) Growth in the number of people below the povertyline.

b) Growth in the number of unemployed people who

tend to migrate from the villages to the cities.c) Environmental pollution and degradation.


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3. Unemployment, Underemployment, DisguisedEmployment and Low Productivity

a) Unemployment in India is caused due to anumber of factors:The population pressureA low level of economic activityPoor Growth rate.


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The choice of capital intensive techniquesof productionRigidity of labour marketLack of infrastructure


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b) Underemployment :The type of employment is not muchrelated to the qualifications of theemployees.A large number of labour hours remainunutilized.


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c) Disguised Unemployment :It refers to unemployment which is hidden. Thenumber of persons who may apparently beemployed may not be contributing anything to

production.Suppose a work can be done by only two persons.If we employ three persons on this job, the third

person would be disguised unemployed.This situation is predominant in the agriculturalsector where family labour and non wageemployment predominate.


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Unemployment, underemployment anddisguised unemployment result from:Labour relatively in abundance in relationto capitalProductivity of labour is low.


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Low productivity in LDCs is due to:Paucity of capital and other resources.Backward technologyLack of proper education

Inferior training and skillPoor health and nutrition


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4. Poverty : Poverty results in lack of

Basic sanitationAccess to clean water

Adequate housingAccess to modern health services.


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5. Income Distribution Wide disparity of income and of standard of

living, due to:The concentration of the modern sectors of theeconomy (industry and commerce) and of publicadministration in urban areas.

Economic development cannot be measuredonly in terms of the level and the growth of per capita income. The distribution of income is avery important aspect.


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7. Agriculture :Low rate of growth of the agricultural sector

Low productivityPopulation pressure has led to long term landdegradation, due to imbalance in natural cycles.Migration to urban areas due to low

productivity


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8. Production conditionsInadequate supply of land in relation to the

rising requirementsInadequate capital formationLack of proper infrastructure for proper

utilization of natural resources


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9. Dualistic EconomyOne segment of the economy is developed,

while the other segment makes use of primitivemethod of production.Urban Dualism : Informal, small scale, labour intensive, low wage sector of family andindividual enterprises exist alongside moderncapital intensive industries.


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Rural Dualism : small family farms alongwith large plantation and mining

enterprises.In many sectors, there are no markets,

posing a severe constraint on any opening

up of the domestic economy.


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10. Foreign Trade :Dependence on exports of primarycommodities.A heavy geographic concentration of trade.


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11. Dominance, Dependence and Vulnerabilityin international relations .

Includes international brain drain , i.e.emigration of professional and skilled

personnel educated in the country at a huge

public cost but living and working indeveloped country.


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12. Presence of informal institutions .A formal credit market easily accessible toall is missing.Bonded labour, credit cooperatives andextended families exist as responses tomarket failure.


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13. Poor governanceTendency to divert public resources for private

gains.Failure to establish a predictable framework of law and government behaviour conducive todevelopmentExcessive regulations and licensing requirementsMisallocation of resources.


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14. Political Corruption : Due to:

Lack of transparencyScarcity of goods and services

Red tapeArchaic Laws.


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Corruption leads to:Rise in transaction costs and uncertainty inthe economyInefficient economic outcomesImpediment in long term foreign anddomestic investmentUndermining of States legitimacy.


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15. Sociological Peculiarities :Entrepreneurial spirit is shown to exist and even

flourish among small and medium size capitalistswho rely on family labour Corruption permeates many sectors of public life.In large social gathering, there is an automatictendency towards segregation of sexes.


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Features of Underdevelopment:Low per capita real income

Large populationUnemployment, Underemployment,

Disguised Unemployment, Low productivityPovertyInequality in income distribution


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Environmental Pollution and DegradationPredominance of Agriculture

Backward production conditionsExistence of dual economyUncompetitive foreign trade

Dominance, dependence and vulnerability ininternational relationsWeak administrative machinery


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India: a developing economy

Four phases of Indias development:1947 -late 1950 s: Priorities were self

reliance, distributive social justice1960 s: food shortage, massive imports of food, strategic defence needs, revamp of agriculture (green revolution), long termirrigation and water management

programmes started.


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1970 s: Decade of consolidation and preparation for a change; increase in

industrial and agricultural productivity; beginning of de bureaucratization of theeconomy

1980 s: Direct import controls relaxed,domestic regulatory barriers to entry,expansion and access to technology relaxed.


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The process of economic reforms in the form of liberalization and de regulation began in July1991: known as the Great Indian Liberalization

Attempt . Features:Deregulation and reduction of governmentalcontrols.Greater autonomy of private investment

Lesser use of public sector More opening of the economy to internationaltrade.


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What changed in the 1990s was the qualityof growth.

It was no longer driven by any foreignelement.

It produced world class goods and services


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Modernization : Effort to promote industrialgrowth; Increase in the contribution of the

secondary and tertiary sectors; Increase inthe work force in these two sectors; cheapfinance infrastructure, raw material supply,

marketing; change in technology of cultivation; effective use of human skills.


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Self reliance : Reduction in the dependenceof foreign aid, diversification of domestic

production, reduction in import of criticalcommodities, promotion of exports.Social justice : Improvement in the living

standards of the poor, reduction ininequalities in asset distribution.


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Important Terms

Gross Domestic Product (GDP) : The sum total of the money value of all final goods and services

produced in an economy during a year. Productivity : Output per unit of land/labour/capital.

Population explosion : A stage where the population of a country increases very fast due toa rapid decline in death rate, whereas the birth rateis slow to fall.


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Poverty Line : It is drawn at that minimum level of income which is needed to purchase basic needs of

subsistence for a household. Dualistic Economy : Coexistence of advanced and primitive techniques of production.

Vicious circle : A vicious circle is a situation inwhich it is not possible to discriminate betweenthe cause and the effect of a phenomenon.

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Indian economy_ School of communciation Amrita University