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# IAS Lecture 7 at Civil Services Study Centre at Administrative Training Institute, Kolkata

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### IAS Lecture 7 at Civil Services Study Centre at Administrative Training Institute, Kolkata

1. 1. 08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in2
2. 2. Harrod-Domar Model 08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in3  The Harrod-Domar model was developed independently by Sir Roy Harrod in 1939 and Evsey Domar in 1946.  It is a growth model which states the rate of economic growth in an economy is dependent on the level of saving and the capital output ratio.  If there is a high level of saving in a country, it provides funds for firms to borrow and invest. Investment can increase the capital stock of an economy and generate economic growth through the increase in production of goods and services.  The capital output ratio measures the productivity of the investment that takes place. If capital output ratio decreases the economy will be more productive, so higher amounts of output is generated from fewer inputs. This again, leads to higher economic growth.  One-sector model: It aggregates all types of production into a single total-the national product—without drawing any distinction between different types of goods, specially capital and consumer goods. g = Growth rate of national income s = Savings rate v= Capital-output ratio g = s/ v
3. 3. 08/03/2014 Subir Maitra/ATI-CSSC iasstudymat.blogspot.in4
4. 4. Mahalanobis Model 08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in5  The Frame of the Second Five Year Plan in India was constructed on a theoretical foundation given by Prof. P. C. Mahalanobis.  It goes back to certain planning models used in the U.S.S.R and that given by Feldman.  Feldman-Mahalanobis model is a two-sector development scheme, which was extended to a four-sector model of planning.  Mahalanobis (1953) developed a two-sector model where the entire net output of the economy was to be produced in the investment goods sector and the consumer goods sector.  Mahalanobis extended this model to a four-sector model which consists of (i) a sector producing investment goods; (ii) a sector producing modern consumer goods (industrial sector); (iii) a sector producing consumer goods by simple methods (traditional agriculture and rural industries) and (iv) a service sector (education and health etc.).
5. 5. 08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in6
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18. 18. Objectives of planning and their compatibility 08/03/2014 Subir Maitra/ATI-CSSC iasstudymat.blogspot.in19  Prof. B.S. Minhas stated: “Securing rapid economic growth and expansion of employment, reduction of disparities in income and wealth, prevention of concentration of economic power, and creation of the values and attitudes of a free and equal society have been among the objectives of all our plans” (Minhas B.S. : Planning and the Poor)  Economic Growth  Self-Reliance  Removal of unemployment  Reduction in income inequalities  Elimination of Poverty  Modernization  Inclusive growth
19. 19. Mutual compatibility/consistency among objectives 08/03/2014 Subir Maitra/ATI-CSSC iasstudymat.blogspot.in20  Rapid Economic Growth and Employment: The process of economic growth can be accelerated by the use of capital- intensive high technology of production. But this type of technology is generally labour-displacing. Thus a choice made in favour of this type of technology could only be at the cost of employment generation in the economy. Likewise, labour intensive tech niques of production, generally create large employment opportunities. But such techniques are relatively less efficient; more employment may be created only at the cost of possible higher rate of growth.  Economic Growth and Equality : If the objective of equity is pursued seriously even by attempting redistribution of wealth and income, it may have diverse effects on the rate of economic growth. The propensity to save of the richer sections of the society is generally higher than the propensity to consume. A redistribution of income and wealth in favour of poor would only mean that the available resources are being diverted from saving to current consumption. Howsoever desirable this diversion may be from the social point of view, it cannot be practiced for long as it would adversely affect the rate of economic growth and this would end up in equal distribution of poverty rather than equal distribution of wealth.
20. 20. Mutual compatibility/consistency among objectives 08/03/2014 Subir Maitra/ATI-CSSC iasstudymat.blogspot.in21  Economic growth and balanced regional development: Balanced regional development would require diversion of resources from relatively less developed regions to backward regions. In the former regions, generally, the developed infrastructure is available which adds to the efficiency of the resources. On the other hand, the same amount of investment in backward regions with hardly any infrastructural facilities would result in relatively lower growth; thus, the balanced regional growth can be had only at the cost of efficient utilization of resources.  Economic growth and price stability: A gradually rising price level generally results in rising profits, that stimulate private investment. On the other hand, stationary price level will have adverse effect on the
21. 21. 08/03/2014Subir Maitra/ATI-CSSC iasstudymat.blogspot.in22 You may visit my blog for my earlier lectures and study materials iasstudymat.blogspot.in You may also join FB Group ‘Economic and Social Development in India’ created by me: https://www.facebook.com/groups/economicands ocialdevelopment/ You may also write to me at: sm.ias.ati@gmail.com Or call +919051484147