The document presented by Dr. K. Santhosh Krishnan discusses the concepts of economic growth and development, outlining their definitions and key indicators such as GDP, per capita income, and the physical quality of life index. It also details obstacles to economic development in underdeveloped countries, such as low capital formation, high population growth, and inadequate infrastructure. Furthermore, it compares the characteristics of developed and underdeveloped countries to highlight differences in industrialization, living conditions, and income distribution.

1. Presented by
Dr. K. Santhosh Krishnan
Assistant Professor
Department of Economics,
Guru Nanak College (Autonomous),
Velachery, Chennai.

2. ECONOMIC GROWTH AND DEVELOPMENT
INTRODUCTION
 Meaning of Economic Development
Economic Development is defined as the process of increase in
the degree of utilization of resources or increase the productivity of
the available resources of a country. It leads to increase the economic
welfare of the people by stimulating the growth of national income.
 Meaning of Economic Growth
Economic Growth is defined as the increase of the real national
income or Gross Domestic Product and also sustains over a long
period of time. It is measured in terms of value-added.

3. Indicators of Economic Development
1. Gross Domestic Product (GDP): When an increase in the level of goods and
services in terms of GDP, it will increase the higher standards of living of people.
2. Per capita income (PCI): Per capita income is generally obtained by dividing the
national income by the population of the country in a particular period of time.
Therefore, PCI=National Income/Population
The Low per capita income reflects the low consumption expenditure and
poor standard of living.
3 Composition of GDP: The composition of GDP shows the relative significance of
the different producing sectors of the economy. It is consisting of agriculture,
industry and service sectors in the economy.
4. Higher output and higher cost: The additional cost of inputs may increase
additional output. The higher output is resulted of over-utilization (over-
exploitation) of human, capital and natural resources.
5. Development of Environmental costs: Over-exploitation of natural resources may
result in the irreversible damage in the environment. The future generation will have
to bear huge costs for present growth.
Continuing…

4. 6. Distribution of Income: It is the rewards of factors of production like land, labour,
capital and organization. A large part of the incremental income is accumulated by a
few people in the underdeveloped countries.
7. Net Economic Welfare (NEW): The concept of NEW was first developed by Paul
Samuelson. It can be calculated by subtracting the gross domestic product by the
costs of production.
8. Physical Quality of Life Index (PQLI): The PQLI originally introduced by Jan
Tinbergen, Nobel laureate. This index mainly consists of three elements, viz., i) Life
expectancy, ii) Infant mortality, iii) Literacy.
9. Economic Development Index (EDI): The EDI was first developed by the National
Councils of Applied Economic Research (NCAER). It can be analyzed the policy
changes of the government on the tax rates and public expenditure especially on
health, education, investment and output.
10. Index of Sustainable Economic Welfare (ISEW): The ISEW was originally
developed by Herman Daly and John B. Cobb (both American economists). This
index includes i) Inequality, ii) Household (country) production, iii) Defense
expenditure, iv) Environmental cost and, v) Resources damage.

5. Major Obstacles of Economic Development
1. Deficiency of capital and foreign exchange
The lack of capital (investment) and foreign exchange is a big hurdle in way of economic
development. The domestic saving of India is just about 5 per cent of GDP and it should be
increased to 25 per cent for a rapid economic development. In 2020, the foreign exchange reserve of
India was just about $ 447 billion.
2. Vicious circle of poverty
The national income of developing countries like India is very low when compared to
developed countries; it leads to the low-level savings and investment of the country. The low-level of
investment causes low rate of capital formation, which makes an obstacle for economic development.
3. Backward state of technology
Due to backward state of technology the natural resources are unable to utilize properly, it
leads to unutilized and underutilized the resources. The improper utilization of natural resources is
also a hurdle in the development process.
4. High rate of inflation
The rate of inflation of India is about double digits in recent years. Due to the high inflation
rate the purchasing power of people will decrease, consequently saving decreases. The low-level of
saving leads to less investment, therefore the country remains the poor and backwardness.
Continuing ………

6. 5. Low per capita income
The per capita income of India is very low when compared to the rich countries. Due to the
high rate of population growth, the per capita income of the country becomes low. The low per capita
income leads to the low saving and capital formation and it is a major issue in the way of economic
development.
6. Dependence of Agriculture:
About 65 per cent of the Indian population is living around 6 lakhs villages and their major
occupation is agriculture. The traditional methods of cultivation, fewer credit facilities, unorganized
markets, limited irrigation facilities, etc., hurdle in the process of economic development.
7. Deficit Balance of payment:
The undeveloped countries like India are facing a persistent deficit in the balance of payment.
The higher import volume than export is a big obstacle in way of economic development.
8. Unproductive expenditure:
The people of developing countries prefer to keep most of the resources in the form of cash,
gold and silver ornaments and also invest in the real estate. These activities may not be used for the
economic development of the countries.
9. Rapidly rising population:
In developing countries like India the population growth rate is very high and it is about 2 per
cent. The rapid and backward population growth is also a hurdle in way of the economic
development.
10. Wastage of resources in legal litigations:
The legal process is very costly and lengthy in the underdeveloped countries like India, the
large part of farmers income is wasted in legal litigations. It is wastage of resources as well as reduces
the rate of saving of the country and development.

7. Characteristics of underdeveloped countries
The underdeveloped countries are generally used to say “less developed”,
“backwards”, “poor” and “developing”, “low-income” countries. The countries with a low
standard of living because of a low per capita income are known as underdeveloped country.
The underdeveloped countries have some basic economic characteristics are as follows,
1. Low-level of per capita income
The per capita income of underdeveloped countries (UDCs) is extremely low when
compared to developed countries. The inequality of the income distribution is mainly
attributed a low-level of per capita income of these countries.
2. Mass Poverty
The majority of the people is living under the below poverty line in underdeveloped
countries like India. As per the report of the World Bank, nearly 77 per cent of the world
population is living in below poverty line in underdeveloped countries. The poverty is arisen
due to the orthodox methods of production in the key sectors as well as the backwardness of
social institutions of the economy.
3. Lack of Capital Formation
The lack of capital formation is a major cause of low rate of investment in
underdeveloped countries. The rate of investment of these countries is lower than 10 per cent,
whereas the developed countries, it is ranging between 20 to 30 per cent.
4. Heavy population pressure
The growth of population in underdeveloped countries is very high due to the
prevailing of high birth rate and low death rate. The level of population in these countries is
increasing by 2 to 3 per cent per annum, which creates various problems in the economy like
pressure on agricultural land, unemployment, food crisis, etc.
Continuing ……

8. 5. Agricultural Backwardness
The agriculture sector of underdeveloped countries generally remains undeveloped in
all aspects. About 60 to 70 per cent of the people of these countries are depending on
agriculture directly or indirectly for their livelihood. In underdeveloped countries, only 10 to
20 per cent of the national income is generated from the agriculture sector.
6. Unemployment problem
Excessive population pressure and lack of alternative occupations are resulted of huge
unemployment in underdeveloped countries. The more dependence on the agricultural sector
leads to disguised unemployment. The lack of industrial development further increases the
unemployment situation in these countries.
7. Lack of infrastructural development
Infrastructure facilities like transportation, communication, electricity generation,
financial institutions, social overheads, etc of underdeveloped countries are much back warded
than developed countries. Due to the low-level of infrastructural facilities of these countries,
the pace of economic development is also very low.
8. Lack of Industrialization
The pace of industrialization in underdeveloped countries is very slow. The lack of
capital formation, the supply of machinery, industrial location, industrial credit, etc., are
attributed to the low industrialisation in these countries. In underdeveloped countries,
industrial development is achieved only in a few areas and most of the areas are restricted.
9. Inefficient administration setup
The absences of the efficient or sound administrative setup of the government in
underdeveloped countries, most of the socio-economic areas are affected. The improper
economic-organizations, inappropriate decision-making, mismanagement, etc. are being an
obstacle to economic development.

9. Characteristics of Developed Countries/Economic Growth
Prof. Simon Kuznet (American Economist) was won the Nobel Prize for
economics in 1971, he was identified the different characteristics of economic
growth. They are as follows,
1. High rate of growth
Historically the developed countries are experienced an annual growth
rate of 5 per cent for the past 200 years. But in East Asia and Pacific nations,
this annual growth rate was about of 8 per cent for the entire periods.
2. High rate of factor productivity
The technological progress includes the up-gradation of existing physical
and human resources will increase the productivity of factors like land and
labour. The sources and supportive of the technological progress is highly
potential in developed countries.
3. High rate of structural transformation
The structural transformation of developed countries is shifting rapidly
from agriculture to manufacturing and then from manufacturing to services. In
these countries, of the total labour-force, only 6 per cent is engaged in
agriculture.
Continuing ……

10. 4. High rate of social, political and ideological transformation
The social, political and ideological transformations are generally
adopted the process of urbanization. The new attitudes and ideas towards
the socio-economic institutions are known as modernization. The process
of modernization is very high in developed countries when compared with
undeveloped countries.
5. Propensity to trade
The trade is generally considered as an engine to economic growth.
The international trade is played a major role in the industrialization of
developed countries.
6. Optimum population size and economic growth
Historically, in 18th and 19th-centuries, the industrialization was took
place with an optimum population in developed countries. The average
annual population growth rate of developed countries is till about below 1
per cent.
7. Advanced research and economic planning
The developed countries are generally used the advanced research
and economic planning to coordinate the scarce resources in the way of
accelerating economic growth. These activities support the country in form
of export promotion, direct credit, subsidies, etc.

11. Comparison between Developed Countries (DCs)
and Underdeveloped countries (UDCs)
Basis Developed Countries Underdeveloped Countries
Meaning A developed country refers to a
country with an effective rate of
industrialization and high per
capita income
An underdeveloped country
refers to a country with a slow
rate of industrialization and low
per capita income
Unemployment and poverty Low High
Social indicators Low infant mortality rate, low
death and birth rate, high life
expectancy rate, etc.
High infant mortality rate, high
death and birth rate, low life
expectancy rate, etc
Living conditions Good Moderate
Revenue Industrial sector Service Sector
Growth High Industrial growth Low Industrial growth
Standard of living High Low
Distribution of Income Equal Unequal
Factors of production Effectively utilized Ineffectively utilized

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