1] Productivity per hectare of land
Improving agricultural productivity is an essential part of economic development stragy. High economic development allows the countries to use their limited natural resources much more efficiently than the less developed countries. Therefore the efficiency with which countries use their productive resources, (land, labour, capital, enterprise), is the main indicator of their level of economic development.
Since agricultural is a dominant activity in most developing countries, their economic development can be primarily measured in terms of land productivity.
“the average yield (in Kgs) of a crop per hectare of land” or “the average yield per hectare of land”.
Land (agricultural) productivity depends on quality of soin, rainfall, climate, irrigation facilities, quality and quantity of inputs, fertilizers, sees, equipments, farm management, credit facilities and other infrastructural facilities.
Under the British rule Indian agriculture was stagnant and both land and labour productivity was miserably low. However under planned economic development since 1950, food grains production in India has continuously increased.
a] According to economic survey 2010-2011, agricultural production in India
b] According to economic survey 2011-2012
India shows a significant improvement in yield per hectare for many crops especially since the green revolution (1967-1969). But when compared to other countries like UK,USA, China, Japan etc it is still low.
Conclusion – Abundance of natural resource (land) is a necessary condition for economic development but not a sufficient one. It is necessary that optimum use of this resource is made through improved techniques.
NOTE – Development in agriculture will
a] Increase employment → increase employment → increase voluntary savings.
b] Increase the taxation base for government to include rural areas.
c] Increase food production → fall in food imports.
d] There will be a steady supply of raw materials → industrialization.
e] Increase in export of agricultural goods → increase in export earnings (foreign exchange).
f] Increase in rural earnings → increase demand for industrial goods.
g] Therefore rural – urban imbalance will reduce.
2] Industrial progress
Industrial progress is regarded as synonymous with economic progress. It plays a dominant role in the economic development of a country. It is an important means to increase the national output as well as the PCI of a country.
Under the British rule India was denied the opportunity to industrialise as India was a source of raw materials as well as a market for finished goods for the British.
During the period of economic planning, especially in the second five year plan, which gave priority to industrial development (and going by the Mahalonobis model), the Indian industries were given enough incentives, and since then the industrial and manufacturing sector including the small scale industries got an opportunity to expand.
As the process of industrialisation starts the share of the industrial sector in the national income (GDP) increases; also the labour force in the industrial sector increases.
Further the benefits of the industrial progress will start flowing to the other sectors. This will increase employment, output and income.
The process of industrialization is also associate with modernization, urbanization, education, technical knowledge and skills etc.
India has started experiencing industrial progress since 1991. The contribution of the industrial sector to GDP is steadily increasing, It was
Therefore industrialization is the only answer to the problems of the developing countries. It is also beneficial to the growth in productivity of the primary sector. Therefore both agricultural sector and the industrial sector will simultaneously enable the country to enjoy the fruits of economic development.
3] Income indice – National income
A growth in GDP/GNP is an urgent requirement in developing countries as it is a foundation on which the process of economic development is built.
As Dr Simon Kuznets states, the real GDP is an useful indicator of economic development. Real GDP refers to the market value of all final goods and services produced in a country during a year plus net income from abroad.
A short period increase in national income which occurs due to the upswing of business cycles does not constitute economic development.
A sustained increase in the real national income rather than money national income implies economic development ie changes in the price level have to be ruled out. This however is unrealistic because variations in price level are inevitable. Therefore to find economic growth/economic development national income has to be adjusted to changes in the price level during a given period of time.
As the process of industiralisation starts, the share of the industrial sector in the GDP increases. Further the benefits of industrial progress will start fliwing to other sectors lleading to a rise in employment, out and income. Besides the process of industrialization is associated with urbanization, modernization, education and technical knowledge etc.
India has started experiencing an increase in GDP since economic planning has been adopted ie 1950-1951, especially since the second five year plan.
According to the economic survey 2011-2012 estimates
Limitation of national income as an indicator of economic development
a] National income does not reveal the real cost of economic development to the society in terms of environmental pollution, deforestation, industrialization etc.
b] National income does not take into account growth of population eg if the increase in population is greater than increase in national income there would be no economic development.
c] Increase in national income does not explain the distribution of national income. If the increase in national income is not distributed more equally, social welfare and therefore economic development may not increase.
d] National income may not reflect proper estimation of goods and services produced
it may be over estimated due to double counting eg due to barter trade, self consumption etc
it may be under estimated eg social services may be ignored.
4] Income indice – Per Capita income
National income was used to indicate economic growth and economic development for a long period of time. Later the emphasis was shifted to Per Capita Income (PCI).
“Per Capita income is the average income of a nation”. It is calculated as
Economists prefer real per capita income to national income because economic development will be meaningless if it fails to increase the standard of living of the common man.
According to them, “economic development is a process whereby an economy’s real PCI increases over a long period of time”.
Growth in PCI requires a growth of population less than the rate of growth of national income.
According to the economic survey 2010-2011, the PCI at market prices was
According to the economic survey 2011-2012, the real PCI was
This shows that with a rise in PCI the number of poor does not increase and inequalities in the distribution and wealth do not widen.
According to the united nations the rate of growth of PCI is a better measure of economic development than national income because
it indicates the standard of living and takes into account the rate of growth of population.
it can also provide some information about the efficiency of production as well as the average consumption pattern of a country.
It can compare the changes in the standard of living in a country and between countries at a point of tome and over a period of time.
Limitation of per capita income as an indicator of economic development
a] PCI is only an average. It does not indicate inequality which may continue to rise even if PCI rises. eg masses may remain poor as the increase in income goes to a few rich instead of many poor. The trickledown effect may be insignificant.
b] PCI includes market transactions only. It does not include non-market transactions like self consumption, barter trade, free services etc. This may lead to under estimation of welfare. It does not take into account the consumption of national income.
c] An increase in PCI indicates an increase in welfare. However, real PCI may only increase because of production of defence goods, harmful goods like opium, cigarettes, junk food, luxury goods for rich etc. This may not increase welfare.
d] Increase in PCI may not always increase the standard of living because consumption may fall as savings may increase, also government may use it for military and other purposes.
e] Per capita income may be a misnomer (misguiding) because two countries with the same PCI may have different growth rates, different rate of growth of population, different types of goods and services consumed, different costs of production, different attitude of people etc.
One of the important objectives of economic development is to improve the standard of living of the people which depends on the per capita consumption of the people.
Economic development is a sustained and secular improvement in the material wellbeing which may be reflected in the increase in the flow of goods and services.
The ultimate objective of all economic activities like consumption, production, distribution exchange etc is to satisfy human wants, which determines the standard of living and welfare of the people.
PCC also throws light on the levels of poverty and inequality in the distribution of income and wealth.
According to the economic survey 2010-2011, the PCC has shown an upward movement and it was Rs 23,626 in 2009-10.
PCC is a better of economic development than PCI as
The increase in the quality and quantity of goods and services (food and non food items like housing, clothing, education, healthcare, transportation etc) consume by the people improves with economic development. In other words PCC improves with economic development, if it does not then economic development becomes meaningless.
Along with standard of living, PCC also brings about positive changes in the labour productivity, skills, capital formation along with an increase in total output.
Limitation of per capita income as an indicator of economic development
a] Consumption depends on tastes, habits and preferences of the people which change from time to time, place to place and person to person. Therefore it is difficult to prepare a common welfare index.
b] NI and PCI may rise due to an increase in price level but PCC may not rise as it depends on real national income.
Also if national income is not equally distributed among regions and people, social and economic welfare of the poor may not rise.
c] Welfare will reduce if PCC rises due to
increase because of production of defence goods, harmful goods like opium, cigarettes, junk food, luxury goods for rich etc.
increase in savings and capital formation at the cost of consumer goods.
increase in production due to longer working hours, poor working conditions etc.
d] An increase in PCC may include social and real costs like environmental protection, sustained growth, pollution, health hazards, labour exploitation etc and therefore welfare will reduce.
6] Sectoral change
Economic development is accompanied by changes in the sectoral composition of population.During the process of economic development, the contribution of the primary sector to national income declines, while that of industrial and service sector rises.
According to the economic survey 2011-2012, India’s GDP (FC) and the contribution of different sectors GDP was as follows
7] Structural transformation
Structural transformation includes proper road construction, continuous supply of power (electricity), good housing facilities, regular water supply, best educational and medical institutions, adequate transport and communication facilities, proper market outlets etc.
The structural changes are accompanied by changes in the attitude, ideologies and institutions. Such changes are ingredients of development and therefore can be considered as indicators of economic development.
Social and ideological transformation leads to modernization and urbanization.
8] Qualitative entrepreneurship
A person who runs the enterprise in known as a “entrepreneur”. Economic development requires a class of talented entrepreneurs because they are the ones who keep the wheels of the economy moving.
An entrepreneur is a person of special qualities such as ability and willingness to innovate, is hard working, optimistic, confident, has a vision and social responsibility. He is a person who has the ability to recognize business opportunities, and is the decision maker and risk bearer.
According to Prof J A Schumpeter entrepreneurs are the “new men” because they introduce new techniques, commodities, find new sources of raw materials, find new markets and help us to enjoy the new world of new products.
An entrepreneur has the ability to co ordinate/assembles natural resources, necessary plant and equipment, manages and organize labour force, has a good decision making acumen and therefore contributes to economic development.
He is the “Kingpin” of business without whom industrial progress is not possible and therefore qualitative entrepreneurship is important for economic development.
History of developed countries has shown that entrepreneurs have playe an important role in development.
India has been fortunate to have the most dynamic and dashing entrepreneurs like Ratan Tata, Dhirubhai Ambani, Aditya Birla, Azim Premji, Narayan Murthy etc who have put India on the economic map of the world.
Hence qualitative entrepreneurship is a crucial indicator of economic development.
9] Capital formation
Another important indicator of economic development is the rate of capital formrtion which means conversion of savings into physical productive assets like dams, electricity generation, transport facilities, modern techniques etc.
The rate of economic development depends on capital formation which in turn depends on savings. Therefore higher the savings, greater would be the capital formation and better wound be the economic development of the country.
10] Environmental balance
Environmental balance means the whole set of air, soil, water, climate, forest etc on which our agriculture and industry depends.
The process of economic development sometimes causes environmental imbalance. This imbalance should be avoided for the sake of future generations. Therefore sustainable development should be the goal of every country.
Economic development should be accompanied by environmental conservation.
11] Physical Quality of Life Index [PQLI]
Physical quality of life refers to the overall wellbeing of the people of a country. It depends not only on factors like GDP, PCI, PCC etc but also on socio-political factors like environment, national security, personal safety, political freedom etc.
Prof Morris D Morris developed and introduced PQLI in 1979 and it was recognized in the Copenhagen summit. PQLI is the average of three components – life expectancy, infant mortality and literacy rate.
12] Human Development Index [HDI]
Human development is a process of enlarging peoples wellbeing and choices of acquiring knowledgd, better standard of living and leading a long and healthy life. Along with this people desire political freedom, guaranteed huan rights and self respect.
Prof Mahabub-Ul-Haq prepared the Human Development Index [HDI], which was recognized by the United Nations Development Programme [UNDP], IN 1990. HDI is the average of life expectancy, literacy and the standard of living.