Lecture S. Maitra on IAS Indian Economy

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Subir Maitra/ATI-CSSC
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Important Concepts of Economics
15/02/2014Subir Maitra / ATI-CSSC iasstudymat.blogspot.in3
Today’s lecture will cover:
Demography and Census
Five Year Plans
Poverty
Unemployment
Development Economics

Subir Maitra / ATI-CSSC iasstudymat.blogspot.in
 Demography: Demography is the statistical study of
human population. It encompasses the study of the
size, structure, and distribution of these populations.
 Crude Birth Rate (CBR): CBR measures the number
of live births per 1000 population in a given year.
 Age-Specific Fertility Rate (ASFR): ASFR
measures the annual number of births to women of a
specified age or age group per 1,000 women in that
age group.
 General Fertility Rate (GFR): GFR is the number of
live births per 1000 women ages 15-49 in a given
year.
 Total Fertility Rate (TFR): TFR is the sum of the
Age-Specific Fertility Rates (5-year age groups
between 15 and 49) for female residents during a
year multiplied by 5, whole divided by 1000.
15/02/20144

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 Crude Death Rate (CDR): CDR is the total number of
deaths to residents in a given year divided by the total
population of that year per thousand.
 Infant Mortality Rate (IMR): IMR is the number of
newborns dying under one year of age divided by the
number of live births per thousand.
 Neonatal mortality rate (NMR): NMR the ratio of the
number of deaths of children less than 29 days of age in
one year to the number of live births in that year per
thousand.
 Post neonatal mortality rate (PNMR): PNMR the ratio
of the number of deaths in one year of children more
than 29 days upto one year of age to the number of live
births in that year per thousand.
 Demographic Dividend: An increase in the working
age ratio can raise the rate of economic growth. This is
known as “demographic dividend.”
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Five Year Plans
 Economic planning: Economic planning is a sort
of conceiving, initiating, regulating and controlling
economic activity by the State according to set
priorities with a view to achieving well defined
objectives within a given time span.
 Decentralized planning: Decentralized planning is a
type of economic planning based on
decentralized decision-making i.e. decision-making is
distributed amongst various economic agents or
localized within production units. Decentralised
planning is basically an exercise in multi-level planning.
 Democratic planning: Planning is ‘democratic’ if
people are associated at both formulation and
implementation stages and it is finalized through15/02/20147

Five Year Plans
 Regional planning: Regional planning is a sort of spatial
planning at various territorial levels (such as
block/district/state) for achieving sustainable development for
the region.
 Indicative planning: Indicative planning is peculiar to the
mixed economy. In a mixed economy, the public and private
sectors work together. In indicative planning the private sector
is neither rigidly controlled nor directed to fulfill the targets and
priorities of the plan. The state provides all types of facilities
to the private sector but does not direct it, rather indicates the
areas in which it can help in implementing the plan.
 Imperative planning: Under imperative planning all
economic activities and resources of the economy operate
under the direction of the state. There is complete control
over the factors of production by the state. There is no
consumers sovereignty in such planning.
 Comprehensive plan: An economic plan that sets targets to
cover all the major sectors of the national economy.
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 Poverty: According to the World Bank (2000),
“poverty is pronounced deprivation in wellbeing.”
 Headcount Index: By far, the most widely used
measure is the headcount index, which simply
measures the proportion of the population that is
counted as poor, often denoted by P0.
 Poverty Gap Index: A moderately popular measure
of poverty is the poverty gap index (PGI), which adds
up the extent to which individuals on average fall
below the poverty line, and expresses it as a
percentage of the poverty line.
 Definition of Poverty Line: A poverty line which
distinguishes the poor from the non-poor is derived by
estimating the value of the minimum required
consumption levels of food, clothing, shelter, fuel and
health care, etc.
Poverty
15/02/20149

Poverty
 Absolute poverty: The people are said to be in
absolute poverty if the minimum amounts of food,
clothing and shelter necessary for survival absorb all of
their income.
 Poverty trap: A bad equilibrium for a family,
community, or nation, involving a vicious cycle in which
poverty and underdevelopment breed more poverty and
underdevelopment, often from one generation to the
next.
 Basic needs: A term used by the International Labor
Organization to describe the basic goods and services
(food, shelter, clothing, sanitation, education, etc.)
necessary for a minimum standard of living.
 Poverty line: A poverty line which distinguishes the
poor from the non-poor is derived by estimating the
value of the minimum required consumption levels of
food, clothing, shelter, fuel and health care, etc. 15/02/201410

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Unemployment
 Frictional Unemployment: A temporary phenomenon which
arises when workers are temporarily out of work while
changing jobs or are suspended due to strikes or lockouts.
 Casual Unemployment: In industries /services such as
construction, catering etc., also in agriculture, where workers
are employment on a day to day basis, there are chances of
casual unemployment occurring due to short-term contracts
which are terminable anytime.
 Seasonal Unemployment: Industries or occupations such
as agriculture, catering, holiday resorts, where production
activities are seasonal in nature offer employment only for a
certain period of time in a year. People engaged in such type
of work may remain unemployed during the off-season, which
is known as seasonal unemployment.
 Structural Unemployment: Unemployment which arises
due to change in the pattern of demand leading to changes in
the structure of production in the economy is termed as the
structural unemployment. 15/02/201412

Unemployment
 Technological Unemployment: Due to introduction of
new machinery, improvements in methods of production,
labour-saving devices etc. some workers tend to be
replaced by machines. This unemployment is known as
technological unemployment. For example, use of
synthetic rubber is bound to reduce demand for natural
rubber leading to unemployment in rubber plantation.
 Cyclical Unemployment: Associated with cyclical
fluctuations of economic activity due to trade cycle;
Mostly found in the capitalist countries like USA etc.
 Chronic Unemployment: When unemployment tends to
a long time feature of a country, it is called chronic
unemployment. Underdeveloped countries suffer from
chronic unemployment on account of the vicious cycle of
poverty, resource scarcity, high population growth, low
capital formation etc. 15/02/201413

Unemployment
 Disguised Unemployment: Refers to a situation where
people may be working and apparently employed, yet
their contribution to output may be zero or negative.
Found mainly in agriculture, public sector enterprises
etc.
 Labour force participation rate (LFPR): LFPR is
defined as the number of persons/ person-days in the
labour force per 1000 persons /person-days.
 Worker Population Ratio (WPR): WPR defined as the
number of persons/person days employed per 1000
persons/person-days.
 Proportion Unemployed (PU): It is defined as the
number of persons/person-days unemployed per 1000
persons/person-days.
 Unemployment Rate (UR): UR is defined as the
number of persons/person-days unemployed per 1000
persons/person-days in the labour force (which includes
both the employed and unemployed). 15/02/201414

Agrarian System: The pattern of land distribution,
ownership and management, also the institutional and
social structure of the agro-based economy.
Agricultural extension services: Services offered to the
farmers, usually by the government or non-governmental
organizations, in the form of transmitting information, new
ideas, methods, and advice relating to use of fertilizers,
pest control, soil testing and conservation methods etc.
with a view to encouraging and assisting them to achieve
larger agricultural output.
Appropriate technology: Technology of production that is
appropriate a country given its factor endowments.
Capability: Amartya Sen introduced the concept of
‘capability’ in development economics. Sen defined
capabilities of an individual as "the freedom that a person
has in terms of the choice of functionings, given his
personal features and his command over commodities.”
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Capital accumulation: Increase in a country’s stock
of real capital like plants, machineries and
productive equipments. Economic development of a
country largely depends on the rate of capital
accumulation.
Foreign direct investment (FDI): Overseas
investments by private multinational corporations.
Broadly, foreign direct investment includes “mergers
and acquisitions, building new facilities, reinvesting
profits earned from overseas operations and intra-
company loans.
Amortization: Gradual payoff of a loan principal.
15/02/201417

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Big push: A concerted effort, led often by the
Government policy, to initiate or accelerate
economic development across a broad spectrum
of sectors and industries in the economy.
Brain drain: The emigration of highly educated
and skilled professional and technical manpower
from the developing to the developed countries.
Buffer stocks: Stocks of commodities such as
food items held by some authority to be used
during scarcity or to moderate price fluctuations.
15/02/201419

Capital intensive technique: A technique of
production that uses a higher proportion of
capital relative to other factors of production
such as labor or land per unit output.
Capital-labour ratio: The number of units of
capital per unit of labour.
Capital-output ratio: The units of capital
required to produce a unit of output over a
given period of time.
Capital stock: The total amount of physical
goods existing at a particular time that have
been produced for use in the production of
other goods (including services).
15/02/201420

Free-trade area: A form of economic integration in which
there exists free internal trade among member countries but
each member is free to levy different external tariffs against
non-member nations.
Customs union: A form of economic integration in which two
or more nations agree to free all internal trade among
nations while levying a common tariff for trade with other
nations. It is a Free Trade area with Common External
Trade. Example: East African Community (EAC), Customs
Union of Belarus, Kazakhstan, and Russia.
Common market: A form of economic integration in which
there is free internal trade, a common tariff, and the free
movement of labor and capital among partner states. The
European Union is an example.
15/02/201421

The best book in the market in Hindi. First edition sold out in two months.
Reprints ordered. To be available on Amazon and Flipkart.
08/03/2014

Debt-service ratio: The ratio of interest and principal
payments due in a year to export receipts for that
year.
Dependency burden: The proportion of the people
aged 0 to 15 and above 65 to total population. The
people in this age group is considered economically
unproductive and therefore not counted in the labor
force.
Dualism: Two situations or systems (one desirable
and the other not) coexisting side by side in one
place. For example, modern and traditional sectors,
urban and rural, extreme poverty and affluence, etc.
15/02/201423

Export promotion: Government policy to increase the
volume of a country's exports through export incentives
and other means with a view to generating more foreign
exchange.
Incremental capital-output ratio (ICOR): The amount of
additional capital needed to increase output by one unit.
Infant industry: A newly set-up domestic industry which
requires the protection of a tariff barrier to grow.
Informal sector: In many countries, a large part of the
urban economy is characterized by small competitive
individual or family firms, petty retail trade and services,
labor-intensive methods, free entry and non-observance of
labour laws etc.
15/02/201424

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Innovation: The application of scientific inventions in
production processes and methods to produce new products
with a view to making profit.
Financial intermediary: Any financial institution, public or
private, that serves to channel loanable funds from savers to
borrowers. Examples include commercial banks, cooperative
banks, non-banking finance companies and development
banks.
Fixed exchange rate: When exchange value of a national
currency remain fixed in relation to another (usually the U.S.
dollar) and is not allowed to fluctuate on the international
money market.
Flexible exchange rate: The exchange value of a
national currency that is free to fluctuate in response
to shifts in demand and supply of foreign exchange.
15/02/201426

Free-rider problem: Situation in which people enjoys
benefits without paying for it.
Globalization: The increasing integration of national
economies with the international markets.
Government failure Situation in which government
intervention in an economy worsens outcomes.
Human capital: Productive investments embodied in human
beings. These include skills, abilities, and health resulting
from expenditures on education, training and medical care.
Inward-looking development policies: Policies that stress
economic self-reliance of a nation, by promoting
development of indigenous appropriate technology, the
imposition of substantial protective tariff and non-tariff trade
barriers to promote import substitution, and the general
discouragement of private foreign investment.
15/02/201427

 Market economy: A free private-enterprise
economy governed by consumer sovereignty, a
price system, and the forces of supply and
demand.
 Mixed economic systems: Economic systems
that are a mixture of both capitalist and socialist
economies. Public and private sectors co-exist in
such economic system.
 Multi-fiber arrngement (MFA): A set of nontariff
bilateral quotas established by developed
countries on imports of cotton, wool, and
synthetic textiles and clothing from individual
developing countries.
 Common property resource: A resource that is15/02/201428

Outward-looking development policies: Policies that encourage
free trade; the free movement of capital, workers, enterprises; a
welcome to multinational corporations etc.
Privatization: Selling public assets (corporations) to individuals
or private business interests.
Property rights: Legal titles given to natural resources such as
land to people enabling them freely to buy and sell their assets,
and other rights to use, gain income from, or sell property.
Purchasing power parity (PPP): The purchasing power of a
country's currency: the number of units of that currency
required to purchase the same basket of goods and services that
a U.S. dollar buys in the United States.
15/02/201429

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Rent seeking: Efforts by individuals and businesses in an economy to capture the
economic rent arising from price distortions and physical controls caused by
excessive government intervention, such as licenses, quotas, interest rate
ceilings, and exchange control.
Social safety net: A set of government programs such as public distribution
system, welfare payments, free health clinics, and unemployment insurance
designed to ensure a minimum level of living for the poor.
Urban bias: When the urban sector is favoured in the development policies,
thereby creating a widening gap between the urban and rural economies.
Trickle-down theory of development: The notion that an overall growth of gross
national product and income per capita would automatically benefit (trickle
down) the poor.
15/02/201431

Tomorrow’s class
Basic Concepts of Economics
Part-III
Money and Banking
Price and Inflation
Stock Market Concepts
International Economics

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