Economic Growth and Economic Development MODULE - 2
Current challenges before
the Indian Economy
3
Notes
ECONOMIC GROWTH AND
ECONOMIC DEVELOPMENT
Economics is all about making smart choices to cope with scarcity. The most
fundamental measurement used to evaluate the success in allocating the scarce
resources is economic growth. Individuals monitor their income and the changing
value of their assets. Businesses track their profits and their market share.
Nations monitor a variety of statistics to measure economic growth such as
national income, productivity etc. Moving beyond growth and productivity,
some economists argue that any assessment of the nation’s economy must also
include measurements of distribution, equity, per-capita income etc. Further, the
country should also focus on other needs of a society, like environmental justice
or cultural preservation to sustain the economic growth process and allows an
overall human development in the economy through creation of more opportunities
in the sectors of education, healthcare, employment and the conservation of the
environment.
OBJECTIVES
After completing this lesson, you will be able to:
z define the meaning of Economic Growth and Economic Development, and
their differences;
z explain the concept of Sustainable Development and Human Development;
z list out the factors affecting Economic Growth; and
z describe the broad Features of the Underdeveloped countries.
ECONOMICS 27
, MODULE - 2 Economic Growth and Economic Development
Current challenges before
the Indian Economy 3.1 ECONOMIC GROWTH
The term economic growth is defined as the process whereby the country’s real
national and per capita income increases over a long period of time.
This definition of economic growth consists of the following features of economic
growth:
Notes
z Economic Growth implies a process of increase in National Income and
Per-Capita Income. The increase in Per-Capita income is the better measure
of Economic Growth since it reflects increase in the improvement of living
standards of masses.
z Economic Growth is measured by increase in real National Income and
not just the increase in money income or the nominal national income. In
other words the increase should be in terms of increase of output of goods and
services, and not due to a mere increase in the market prices of existing goods.
z Increase in Real Income should be Over a Long Period: The increase of real
national income and per-capita income should be sustained over a long period
of time. The short-run seasonal or temporary increases in income should not
be confused with economic growth.
z Increase in income should be based on Increase in Productive Capacity:
Increase in Income can be sustained only when this increase results from some
durable increase in productive capacity of the economy like modernization or
use of new technology in production, strengthening of infrastructure like
transport network, improved electricity generation etc.
3.2 ECONOMIC DEVELOPMENT
Economic development is defined as a sustained improvement in material well
being of society. Economic development is a wider concept than economic
growth. Apart from growth of national income, it includes changes – social,
cultural, political as well as economic which contribute to material progress. It
contains changes in resource supplies, in the rate of capital formation, in size and
composition of population, in technology, skills and efficiency, in institutional and
organizational set-up. These changes fulfill the wider objectives of ensuring more
equitable income distribution, greater employment and poverty alleviation. In
short, economic development is a process consisting of a long chain of inter-
related changes in fundamental factors of supply and in the structure of demand,
leading to a rise in the net national product of a country in the long run.
28 ECONOMICS
Current challenges before
the Indian Economy
3
Notes
ECONOMIC GROWTH AND
ECONOMIC DEVELOPMENT
Economics is all about making smart choices to cope with scarcity. The most
fundamental measurement used to evaluate the success in allocating the scarce
resources is economic growth. Individuals monitor their income and the changing
value of their assets. Businesses track their profits and their market share.
Nations monitor a variety of statistics to measure economic growth such as
national income, productivity etc. Moving beyond growth and productivity,
some economists argue that any assessment of the nation’s economy must also
include measurements of distribution, equity, per-capita income etc. Further, the
country should also focus on other needs of a society, like environmental justice
or cultural preservation to sustain the economic growth process and allows an
overall human development in the economy through creation of more opportunities
in the sectors of education, healthcare, employment and the conservation of the
environment.
OBJECTIVES
After completing this lesson, you will be able to:
z define the meaning of Economic Growth and Economic Development, and
their differences;
z explain the concept of Sustainable Development and Human Development;
z list out the factors affecting Economic Growth; and
z describe the broad Features of the Underdeveloped countries.
ECONOMICS 27
, MODULE - 2 Economic Growth and Economic Development
Current challenges before
the Indian Economy 3.1 ECONOMIC GROWTH
The term economic growth is defined as the process whereby the country’s real
national and per capita income increases over a long period of time.
This definition of economic growth consists of the following features of economic
growth:
Notes
z Economic Growth implies a process of increase in National Income and
Per-Capita Income. The increase in Per-Capita income is the better measure
of Economic Growth since it reflects increase in the improvement of living
standards of masses.
z Economic Growth is measured by increase in real National Income and
not just the increase in money income or the nominal national income. In
other words the increase should be in terms of increase of output of goods and
services, and not due to a mere increase in the market prices of existing goods.
z Increase in Real Income should be Over a Long Period: The increase of real
national income and per-capita income should be sustained over a long period
of time. The short-run seasonal or temporary increases in income should not
be confused with economic growth.
z Increase in income should be based on Increase in Productive Capacity:
Increase in Income can be sustained only when this increase results from some
durable increase in productive capacity of the economy like modernization or
use of new technology in production, strengthening of infrastructure like
transport network, improved electricity generation etc.
3.2 ECONOMIC DEVELOPMENT
Economic development is defined as a sustained improvement in material well
being of society. Economic development is a wider concept than economic
growth. Apart from growth of national income, it includes changes – social,
cultural, political as well as economic which contribute to material progress. It
contains changes in resource supplies, in the rate of capital formation, in size and
composition of population, in technology, skills and efficiency, in institutional and
organizational set-up. These changes fulfill the wider objectives of ensuring more
equitable income distribution, greater employment and poverty alleviation. In
short, economic development is a process consisting of a long chain of inter-
related changes in fundamental factors of supply and in the structure of demand,
leading to a rise in the net national product of a country in the long run.
28 ECONOMICS
