Economic development can be defined as the process of improving a nation's,

community's, or region's economic well-being and quality of life in accordance

with predetermined goals and objectives. Economic development is a result of a
combination of market productivity and national welfare values.

What is Economic Development?

 Economic development is defined as a sustained improvement in society's

material well-being.
 Economic development encompasses a broader range of concepts
than economic growth.
 Aside from national income growth, it includes social, cultural, political,
and economic changes that contribute to material progress.
 It includes changes in resource supplies, capital formation rates, population
size and composition, technology, skills, and efficiency, as well as
institutional and organizational structure.
 These changes contribute to the larger goals of ensuring more equitable
income distribution, increased employment, and poverty alleviation.
 It is a long chain of interconnected changes in fundamental supply factors
and demand structure that leads to an increase in a country's net national
product in the long run.

Features of Economic Development

 Economic development entails changes in income, savings, and

investment, as well as gradual changes in the country's socio-economic
structure (institutional and technological changes).
  Development related to human capital growth, a reduction in inequality
numbers, and structural changes that improve the population's quality of
life.
 To assess economic development, qualitative indicators such as the
HDI (Human Development Index), gender-related indexes, Human
Poverty Index (HPI), infant mortality, literacy rate, and so on are used.
 Economic development results in both qualitative and quantitative
changes in the economy.
 Economic development reflects progress in a country's quality of life.

Factors Affecting Economic Development

1. Infrastructural Development

 Infrastructure development improves people's quality of life.

 As a result, an increase in the rate of infrastructural development will result
in a nation's economic development.

2. Education

 Improving literacy and technical knowledge will result in a better

understanding of how to use various pieces of equipment.
 This will increase labor productivity and, as a result, a country's economic
development.

3. Increase in capital formation.

 An increase in capital formation will result in more productive output in an

economy, which will have a positive impact on economic development.
Measurement of Economic Development

1. National Income and Per Capita Income

 This is the traditional method of assessing economic development.

 The World Bank employs the concept of per-capita Gross National
Income (GNI) as a means of comparing and categorizing countries based
on their economic development stage.
 The World Bank divides the world's economies into four income
categories:
o Low-income – Less than $1036
o Lower-middle income – $1036 - $4045
o Upper-middle – $4046 - $12535
o High income – More than $12535

 According to this classification, India, with a per-capita GNI of US $ 1900

(as of 2020 figures), belongs to the Lower-middle Income countries.

2. Purchasing Power Parity (PPP)

 Gustav Casell, an economist, proposed the PPP approach in 1918.

 The concept is based on the law of one price, which states that in the
absence of trade and non-trade barriers, identical goods in different
countries will have the same price when expressed in the same currency.
 The PPP is defined as the number of units of a country's currency required
to purchase the same amount of goods and services in the domestic market
as one dollar would in the US.
 For example, if we have to spend ₹30 to buy the same amount of goods
and services as are purchased in spending $1inUnited States, then the
exchange rate in the PPP approach is $1 = ₹30.
3. Green GDP

 Green GDP is a term that refers to GDP after accounting

for environmental degradations.
 Green GDP is an attempt to measure an economy's growth by deducting
the costs of environmental damage and ecological degradation from
GDP.
 The concept was first introduced as part of a System of National
Accounts (SNA).
 The System of National Accounts (SNA) is an accounting framework for
measuring an economy's economic activities of production, consumption,
and wealth accumulation over time.
 When data on the economy's use of the natural environment is integrated
into the national accounting system, it is referred to as green national
accounts or environmental accounting.
 The environmental accounting process consists of three steps: physical
accounting, monetary valuation, and integration with national
income/wealth accounts.
 Physical accounting determines the state, types, and extent (qualitative
and quantitative) of resources in spatial and temporal terms.
 Monetary valuation is used to determine the tangible and intangible
components of a business.
 Following that, the net change in natural resources in monetary terms is
incorporated into the Gross Domestic Product to arrive at the Green GDP
value.

4. Human Development Index (HDI)

  The Human Development Index (HDI) is a statistical tool used to assess
a country's overall performance in social and economic dimensions.
 The social and economic dimensions of a country are determined by
people's health, educational attainment, and standard of living.
 In 1990, Pakistani economist Mahbub ul Haq developed the HDI,
which was later used by the United Nations Development Program
(UNDP) to assess the country's development.
 The index is calculated by combining four major indicators:
o life expectancy for health,
o expected years of schooling,
o mean years of schooling for education, and
o Gross National Income per capita for a standard of living.
 Currently, India ranks 131 out of 189 countries in the United Nations’
Human Development Index.

Importance of Economic Development

 Just as we need to make conscious efforts to increase our income and

growth, we also need to make conscious efforts to increase our economic
development and higher economic development.
 Development has not been possible anywhere in the world without
a conscious public policy.
 Similarly, we can say that there can be no development without growth.
 If economic growth is used properly for development, it will re-accelerate
growth and eventually bring a larger population into the development
arena.
 Similarly, high growth with low development leads to a decline in growth.
 Economic development is a more relevant indicator of progress and quality
of life in developing countries such as India, where inequality in wealth
distribution is prevalent.
Economic Reforms:
Economic reforms or structural adjustment is a long-term multi-dimensional
package of various policies (Liberalisation, privatization, and globalization) and
programs for speedy growth, efficiency in production, and make a competitive
environment. Economic reforms were adopted by the Indian Govt. in 1991.

Factor’s responsible for Economic reforms.

1. Fall in foreign exchange reserve: as imports grew faster than exports
2. Adverse balance of payments resulted in repayment crisis
3. Mounting fiscal deficit as govt. expenditure grew faster than revenue
4. Rise in prices, which has a negative impact on Investment.
5. Failure of public enterprises:- very low return on high Investment
6. Gulf crisis increases crude oil prices which negatively affected BOP.
7. High rate of deficit financing
8. Collapse of soviet block.

New Economic Policy:- It refers to economic reforms introduced since 1991 to

improve the productivity and profitability of economy and to make it globally
competitive.
Measures of New Economic policy
Stabilisation measures: These are short run measures introduced by Govt to
control rise in price, adverse balance of payment and fall in foreign ex-change
reserve.

Structural adjustment: These are long run policies, aimed at improving the
efficiency of the economy and increasing its international competiveness by
removing the rigidity in various segment of the Indian economy.
In the new economic policy 1991, Structural reforms can be seen with respect
to.
1. Liberalisation.
2. Privatisation
3. Globalisation.

Liberalisation
Liberalisation means removing all unnecessary control and restrictions like
permits licences, protectionist duties quotas etc. In other words, It may defined
as loosening of govt. regulation in a country to allow for private sector
companies to operate business transactions with fewer restrictions.
Objectives of liberalisation :-
1. To decrease debt burden of the country
2. To expand size of the market
3. To increase competition among domestic industries
4. To encourage export and import of goods and services.

Economic reforms under liberalization.

1. Industrial sector reforms

 Abolition of Industrial Licensing

 Contraction off Public Sector
 Freedom to Import capital goods.
2. Financial sector reforms.

 Reducing various Ratios (SLR, CRR)

 Change in the role of RBI from the regulator to the facilitator.
 De-regulation of interest rates
3. Fiscal reforms/Tax reforms
4. Foreign exchange reforms

 Devaluation of rupee
5. Trade and investment reforms.

Privatization
Privatization is the general process of involving the private sector in the
ownership or operation of state-owned enterprises.
Policies adopted for privatization
1. Contraction of the public sector.
2. Abolish the ownership of Govt. in the management of public enterprises.
3. Sale of shares of public enterprises.

Objectives of Privatisation: -
1. Raising funds from Disinvestment
2. Improving the financial condition of the govt.
3. Bringing healthy competition within an economy
4. Making Way for Foreign Direct Investment

Globalization
Globalization may be defined as a process associated with increasing openness,
growing economic interdependence, and deepening economic integration in the
world economy.
Policy promoting globalization.
1. Increase in equity limit of foreign investment.
2. Partial convertibility.
3. Long-term trade policy.
4. Reduction in tariff.
An Appraisal of LPG Policies
1. Increase in foreign investment.
2. Increase in foreign exchange reserves.
3. A check of inflation.
4. Increase in national income.
5. Increase in exports.
6. Consumer sovereignty.

Negative Impact:
1. Neglect of agriculture.
2. Jobless growth.
3. Increase income inequalities.
4. Adverse effect of disinvestment policy.
5. Spread of consumerism.
6. Cultural erosion.
7. Encourages economic colonialism.
World Trade Organisation (WTO)
World Trade Organisation, as an institution was established in 1995. It replaced
General Agreement on Trade and Tariffs (GATT) which was in place since
1946.
The overriding objective of the World Trade Organisation is to help trade flow
smoothly, freely, fairly, and predictably; to meet its objective WTO performs
the following functions: -

 Administering W.T.O Trade Agreements.

 Acting as a Forum for trade negotiations.
 Settling and Handling Trade disputes
 Monitoring and reviewing national trade policies,
  Assisting the member in trade policies through technical assistance
and training programs
 Technical assistance and training for developing countries.
 Co-operation with another International Organisation
Poverty is the inability to fulfill the minimum requirement of life like food, clothing,

housing education and health facilities etc.

 Relative poverty refers to poverty of people in comparison to other people in

different region or nations.

 Absolute poverty refers to total number of people living below the poverty

line.

Absolute poverty is measured on the basis of two criteria:-

1. Minimum Calories Consumption Criteria

2. Minimum Consumption Expenditure Criteria

1. Minimum Calories Consumption: - People who are not getting 2400 calories per

person per day in rural areas and 2100 calories in urban area is considered to be

living below poverty line.

2. Minimum Consumption Expenditure Criteria: - The new poverty line, thus,
translates to a monthly per capita consumption expenditure of Rs 972 in rural areas

and Rs 1,407 in urban areas in 2011-12. Or Rs 32 in rural areas and Rs 47 in urban

areas on a per capita daily basis.

Poverty line refers to that line which expresses per capita average monthly

expenditure that is essentially required by the people to satisfy their minimum needs.

As per Tendulkar committee, poverty line is estimated in monthly basis as Rs. 816 in

rural areas and Rs. 1000 in urban areas. People who are not able to earn even such
amount in a month are considered below poverty line.

According to a survey, approx. 22% population in India is blow poverty line.

Estimation of poverty line:

Calories based estimation— For rural area intake calorie was estimated at 2,400

calories and for urban area it is 2,100 calories,

In 1999-2000 new ways of measuring started i.e. monthly per capita expenditure–it

estimates for rural area as consumption worth Rs. 816 per persons and for urban

areas it is Rs. 1000 Presently as per Tendulkar committee.

Three approach of govt to combat poverty.

Approach

1. Enhancing Economic Growth

2. Specific Programmes for Poverty Alleviation

3. Fulfilling Minimum Needs of the poor

Vicious Circle of Poverty:- It refers to situation of self reinforcing forces in

which there are certain factors that are related in a circular way and results in

continuation of poverty and under development.

Causes of Poverty:
1. Rapid increase in population.

2. Low level of National product.

3. Rise in price.

4. Unemployment.
5. Low rate of growth.
6. Capital deficiency.

7. Rural Indebtedness

8. Exploitation under British rule

9. Low education

10. Inflationary Pressure

11. High Level of Migration from rural areas

12. Failure to implement land reforms.
Measures adopted by the Government to remove poverty.

1. Food for work programme.

2. Swarnjayanti Gram Swarozgar Yojana.

3. Pradhan Mantri Gramodoya Yojana.

4. Sompoorna Gramin Rozgar Yojana.

5. Swarn Jayanti Shahri Rozgar Yojana.

6. Mahatma Gandhi National Rural Employment Guarantee Scheme.

7. Jawahar Gram Samridhi Yojana

Programme adopted by govt. to help elderly and poor people and also

destitute women:-
1. National social assistance programme which includes National Old Age
Pension Scheme, National Family Benefit Scheme, National Maternity benefit

scheme.

2. Annapurna Yojana

3. On the job training