Module 1: Economic Development

Economic Development:
Economic Development is programs, policies or activities that seek to improve the economic well-being and
quality of life for a community.
What “economic development” means to you will depend on the community you live in. Each community has its
own opportunities, challenges, and priorities. Your economic development planning must include the people
who live and work in the community.
Determinants of Economic Development:
Economic development is not determined by any, single factor. Economic development depends on Economic,
Social, Political, and religious factors- Economic and Non–Economic Factors:
Economic Factors:
1. Natural Resource:
The principal factor a ecting the development of an economy is the availability of natural resources. The
existence of natural resources in abundance is essential for development.
2. Capital Formation:
Capital formation is the main key to economic growth. Capital formation refers to the net addition to the existing
stock of capital goods which are either tangible like plants and machinery or intangible like health, education,
and research.
3. Size of the Market:
The large size of the market would stimulate production, increase employment and raise the National per capita
income. That is why developed countries expand their market to other countries through WTO.
4. Structural Change:
Structural change refers to change in the occupational structure of the economy. Any economy of the country is
generally divided into three basic sectors: Primary sectors such as agricultural, animal husbandry, forestry, etc;
Secondary sectors such as industrial production, construction, and Tertiary sectors such as trade, banking, and
commerce.
5. Financial System:
The financial system implies the existence of an e icient and organized banking system in the country.
6. Marketable Surplus:
Marketable surplus refers to the total amount of farm output cultivated by farmers over and above their family
consumption needs. This is a surplus that can be sold in the market for earning income.
7. Foreign Trade:
A country that enjoys a favourable balance of trade and terms of trade is always developed. It has huge forex
reserves and a stable exchange rate.
8. Economic System:
The countries which adopt free-market mechanism (laissez-faire) enjoy better growth rate compared to
controlled economies.
Non – Economic Factors:
‘Economic Development has much to do with human endowments, social attitudes, political conditions, and
historical accidents. Capital is a necessary but not a su icient condition of progress.’
1. Human Resources:
Human resource is named human capital because of its power to increase productivity and thereby national
income. There is a circular relationship between human development and economic growth. A healthy, educated
and skilled labour force is the most important productive asset. Human capital formation is the process of
increasing knowledge, skills, and the productive capacity of people.
2. Technical Know-how:
As scientific and technological knowledge advances, more and more sophisticated techniques steadily raise the
productivity levels in all sectors.
3. Political Freedom:
The process of development is linked with political freedom.
4. Social Organization:
People show interest in the development activity only when they feel that the fruits of development will be fairly
distributed.
5. Corruption free administration:
Corruption is a negative factor in the growth process. Unless the countries root-out corruption in their
administrative system, the crony capitalists and traders will continue to exploit national resources.
6. Desire for development:
The pace of economic growth in any country depends to a great extent on people’s desire for development.
7. Moral, ethical and social values:
These determine the e iciency of the market, according to Douglas C. North. If people are not
honest, the market cannot function.
8. Casino Capitalism:
If People spend a larger proportion of their income and time on entertainment liquor and other illegal activities,
productive activities may su er, according to Thomas Piketty.
Measures of Economic Development:
Economic development is just policy with aims at improving the social well-being as well as economic conditions
of the nation. While economic growth is a result of rising in GDP as well as market productivity. There are various
needs we need to consider while measuring economic development. Here, below we will explain these factors
in detail.
1. Rise in real per capita income.
2. Quality of life and expectancy.
3. Real gross national product.
4. Human development index.
5. Gender-related development index.
6. Poverty index.
Real Gross National Product (GNP) and Gross Domestic Product (GDP):
As mentioned above, GNP, as well as GDP, are the measuring factors for economic development of a nation.
Increase in both of these ensures that the larger availability of the good and services in that country. If this
supports the standard of living of the people than it increases the economic conditions of the nation. But
there are some limitations to this as well. Like the increase in the size of GDP does not directly means the
more availability of services and goods. Whenever the GDP is calculated for the current prices, there may be
an increase due to price rise. This does not mean the availability of goods and services have increased.
Rise in Real per Capita Income:
One of the factors that measure the economic development of a nation is the rise in real per capita income.
There’s a perception that whenever the income of individual increases than it’s real income increases. And
when this happens the person is happy and prosperous. But there are some limitations to this. These
limitations through per capita income do not determine whether the rise is due to equal distribution or
unequal distribution. Same is the case with the quality of goods and services being provided and consumed.
Further, the quality of public goods also a ects economic welfare.
Quality of Life and Expectancy:
When the basic facilities like water, electricity, and housing are available to anyone that the quality of life is
considered as good in that nation. Here the measuring factor is the needs of the people. These needs are
basic needs like access to health, sanitation, education, nutrition, etc. For this, the main factor is the infant
mortality rate. This is the death rate of a child who is less than a year old. While life expectancy is the average
life of the population that lives.
Human Development Index:
It includes several factors like long and healthy living, the welfare of the people, etc. This index also includes
the standard of living of people, literacy rate, and purchasing power parity in terms of real income.
Gender-related development index:
This is popularly known as GDI. This is used to measure gender inequalities by measuring three basic
dimensions of human development. They are education, health, and economic resources. They measure
education by calculating expectancy years for schooling for males and females. While health measures the
male and female life expectancy during the time of birth.
While economic resources are the command over them is measured by income earned by males as well as
females. This index is useful to show the inequality between male and female in the above-mentioned
dimensions.
Poverty Index:
The poverty index which is otherwise called multidimensional poverty index aka MPI helps in identifying
various factors. These various factors are health, the standard of living, and education. For this index, the
microdata which is available from surveys is used. This data is collected on the basis of deprivation of toilet,
water, cooking fuel, assets, etc. Based on the availability of these factors each person is termed as poor and
nonpoor.
The indicators are decided on this basis. For education, they consider two factors, school attainment, and
school attendance. School attainment is to determine when no member of the family has attended at least
6 years of schooling. While school attendance is determined when the child is of the school age is not
attending the school. Similarly, for health, the factors are child mortality and health. While for the standard
of living the factors are drinking water, electricity, sanitation, and cooking fuel.

Sustainable Development:
Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs.
Sustainable Development Goals:
 To promote the kind of development that minimises environmental problems.
 To meet the needs of the existing generation without compromising with the quality of the
environment for future generations.
Achieving Sustainable Development:
Sustainable development can be achieved if we follow the following points:
 It can be achieved by restricting human activities.
 Technological development should be input e ective and not input utilising.
 The rate of consumption should not surpass the rate of salvation.
 For renewable resources, the rate of consumption should not surpass the rate of production of
renewable substitutes.
 All types of pollution should be minimised.
 It can be achieved by sensible use of natural resources.
Examples of Sustainable Development:
 Wind energy.
 Solar energy.
 Crop rotation.
 Sustainable construction.
 E icient water fixtures.
 Green space.
 Sustainable forestry.
Physical Quality of Life Index:
 The Physical Quality of Life Index (PQLI) is an e ort to quantify a nation’s overall standard of life
or even well.
 The number is calculated by taking the average of three facts and figures: basic literacy rate,
newborn fatality rate, and their life span at one year, all of which are evenly valued on a 0 to 100
scale.
 It was discovered in the middle of the 1970s by Morris David Morris for the International
Technical Committee as one of a number of metrics produced in response to discontent through
the use of GNP as a proxy for economic growth.
 While the Physical Quality of Life Index may be considered an improvement, it shares the basic
di iculties associated with quantifying the quality of life. Additionally, it has been questioned
due to the substantial overlapping between newborn mortality.
 Life expectancy rate represents the average number of years that an individual is predicted to
live. According to the 2011 census, the average age in India is 66.8 years.
 Infant mortality is the number of newborns that die during the first year of infancy for every 1000
births. According to the 2011 census, it is 47 per 1000 people.
 Basic literacy rate: Any individual above the age of seven who can read and comprehend in at
least one language is deemed educated. According to the 2011 census, it stands at 74.04 per
cent in India.
 Each of the aforementioned criteria is scored on a scale of 1 to 100, with 1 being the poorest
performance and 100 representing the highest performance. The Physical Quality of Life Index
is then computed by comparing these three parameters and allocating equal merit to each.

Advantages of PQLI:
 The advantages of PQLI are that it aids in comprehending the economy’s overall wellbeing and
the e ectiveness with which its welfare measures are executed. This assists the government
in implementing remedial measures.
 The technique used to calculate the Physical Quality of Life Index is universally accepted. As a
result, it may be used to compare nations, which enables comparatively impoverished
countries to take remedial action, which is one of the advantages of PQLI.
 The three metrics, namely life expectancy, infant mortality, and literacy, all accurately reflect
the country’s population wellbeing. A nation that scores well on all three parameters is
considered to have a successful economy. It is another advantage of PQLI.
  The Physical Quality of Life Index evaluates the country’s sharing of income. A nation cannot
have a high life expectancy, a long-life expectancy, or a low newborn mortality rate unless a
significant proportion of its inhabitants gain from economic progress.
Drawbacks of PQLI
 The Physical Quality of Life Index overlooks a variety of elements that a ect one’s quality of
life, including job, housing, justice, life expectancy rate, and state pensions.
 The Physical Quality of Life Index is an arithmetic mean of the literacy rate, infant mortality,
and life expectancy rate, with each element receiving equal weighting. However, it is hard to
see why all elements should be given equal weight.
 The Physical Quality of Life Index does not account for a country’s economy changing
structurally.

Human Development Index Definition:

The Human Development Index (HDI) is a single index measure that aims to record the three key
dimensions of human development: access to knowledge, a decent standard of living, and long and
healthy life. In other words, the Human Development Index is practiced to measure how
development has improved human life.
A Indicators of Human Development
 Human development index rank: India has been on 130th rank in Human Development
Index.
 Life expectancy: It is the age by which a particular person belonging to a particular age is
expected to live.
 Life expectancy at birth in India: Males: 67.34 years, Females: 69.64 years
 Infant mortality rate: It is the total number of infants dying below the age of 1 year out of 1000
babies. Infant mortality rate in India is 40.5 infants.
 Maternal mortality rate: It is the total number of dying mothers out of 1000 mothers while
giving birth to babies. According to the 2011–13 census, maternal mortality rate in India is 167
deaths.
 Adult literacy ratio: It refers to the number of people of both the sexes, i.e., male and female
aging more than 15 years having the ability to read and write.
 Percentage of the population below poverty line: People below the poverty line are
categorised according to calories consumed by each person per day, which is 2400 in rural
areas and 2100 in urban areas. Any person consuming calories less than the minimum limit
mentioned above is said to be below the poverty line.
Gender Development Index
The Human Development Index is a three-indicator index that assesses progress in human
development but ignores gender inequalities. Therefore, the GDI index is used to investigate gender
di erences in achievement. The GDI, like the HDI, assesses men and women's achievements in the
same three dimensions and variables.