Issues in Development

and Planning

1. Characteristics of Underdeveloped
Countries
• The economies of various countries has
been broadly divided into two:
 Developed economies
 Underdeveloped or less developed
economies (LDC) or developing economies.
• The characteristics of a developed economy
are:
 Higher levels of aggregate output
 Higher consumption standard
 More savings and investment
 Higher standard of living
• An LDC is characterized by:
 Low standard of living
 High population growth rate.
 Abundant but underutilized natural resources.
 Low rate of capital formation
 Continuous efforts to raise the standard of living
through a proper utilization of resources.
 Nature of Indian Economy
1. Low Per capita real 8. Production conditions
income. 9. Dualistic Economy
2. Population 10. Foreign Trade
3. Employment 11. International Relations
4. Poverty 12. Informal Institutions.
5. Income Distribution 13. Poor Governance
6. Environmental Pollution 14. Political Corruption
7. Agriculture 15. Sociological
Peculiarities.
1. Low per capita real income:
 This is due to a low level of national income
and a high level of population.
 Low level of national income is due to low
productivity, low saving and investment,
backward technology and resources.
 There are many socio-economic reasons for
high level of population.
2. Population:
 India has a higher population growth rate as
compared to the developed countries.
 Three consequences of population explosion:
a) Growth in the number of people below the poverty
line.
b) Growth in the number of unemployed people who
tend to migrate from the villages to the cities.
c) Environmental pollution and degradation.
3. Unemployment, Underemployment, Disguised
Employment and Low Productivity
a) Unemployment in India is caused due to a
number of factors:
 The population pressure
 A low level of economic activity
 Poor Growth rate.
 The choice of capital intensive techniques
of production
 Rigidity of labour market
 Lack of infrastructure
b) Underemployment:
 The type of employment is not much
related to the qualifications of the
employees.
 A large number of labour hours remain
unutilized.
c) Disguised Unemployment:
 It refers to unemployment which is hidden. The
number of persons who may apparently be
employed may not be contributing anything to
production.
 Suppose a work can be done by only two persons.
If we employ three persons on this job, the third
person would be disguised unemployed.
 This situation is predominant in the agricultural
sector where family labour and non wage
employment predominate.
• Unemployment, underemployment and
disguised unemployment result from:
 Labour relatively in abundance in relation
to capital
 Productivity of labour is low.
• Low productivity in LDCs is due to:
 Paucity of capital and other resources.
 Backward technology
 Lack of proper education
 Inferior training and skill
 Poor health and nutrition
4. Poverty:
• Poverty results in lack of
 Basic sanitation
 Access to clean water
 Adequate housing
 Access to modern health services.
5. Income Distribution
• Wide disparity of income and of standard of
living, due to:
 The concentration of the modern sectors of the
economy (industry and commerce) and of public
administration in urban areas.
• Economic development cannot be measured
only in terms of the level and the growth of per
capita income. The distribution of income is a
very important aspect.
6. Environmental Pollution and Degradation:
 Caused mainly by misuse of resources.
 Poverty and rapid population growth
contributes towards it.
 There is massive urban consumption of
resources and production of waste which is
the source of environmental pollution.
7. Agriculture:
 Low rate of growth of the agricultural sector
 Low productivity
 Population pressure has led to long term land
degradation, due to imbalance in natural cycles.
 Migration to urban areas due to low
productivity
8. Production conditions
 Inadequate supply of land in relation to the
rising requirements
 Inadequate capital formation
 Lack of proper infrastructure for proper
utilization of natural resources
 Technological backwardness
 Lack of dynamic entrepreneurship due to
small size of market, lack of market
intelligence and inefficient administrative
machinery.
9. Dualistic Economy
 One segment of the economy is developed,
while the other segment makes use of primitive
method of production.
 Urban Dualism: Informal, small scale, labour
intensive, low wage sector of family and
individual enterprises exist alongside modern
capital intensive industries.
 Rural Dualism: small family farms along
with large plantation and mining
enterprises.
 In many sectors, there are no markets,
posing a severe constraint on any opening
up of the domestic economy.
10. Foreign Trade:
 Dependence on exports of primary
commodities.
 A heavy ‘geographic concentration’ of
trade.
11.Dominance, Dependence and Vulnerability
in international relations.
 Includes international ‘brain drain’, i.e.
emigration of professional and skilled
personnel educated in the country at a huge
public cost but living and working in
developed country.
12. Presence of informal institutions.
 A formal credit market easily accessible to
all is missing.
 Bonded labour, credit cooperatives and
extended families exist as responses to
market failure.
13. Poor governance
 Tendency to divert public resources for private
gains.
 Failure to establish a predictable framework of
law and government behaviour conducive to
development
 Excessive regulations and licensing requirements
 Misallocation of resources.
14. Political Corruption:
• Due to:
 Lack of transparency
 Scarcity of goods and services
 Red tape
 Archaic Laws.
• Corruption leads to:
 Rise in transaction costs and uncertainty in
the economy
 Inefficient economic outcomes
 Impediment in long term foreign and
domestic investment
 Undermining of State’s legitimacy.
15. Sociological Peculiarities:
 Entrepreneurial spirit is shown to exist and even
flourish among small and medium size capitalists
who rely on family labour
 Corruption permeates many sectors of public life.
 In large social gathering, there is an automatic
tendency towards segregation of sexes.
• Features of Underdevelopment:
 Low per capita real income
 Large population
 Unemployment, Underemployment,

Disguised Unemployment, Low productivity

 Poverty
 Inequality in income distribution
 Environmental Pollution and Degradation
 Predominance of Agriculture
 Backward production conditions
 Existence of dual economy
 Uncompetitive foreign trade
 Dominance, dependence and vulnerability in
international relations
 Weak administrative machinery
 India: a developing economy
• Four phases of India’s development:
 1947-late 1950s: Priorities were self
reliance, distributive social justice
 1960s: food shortage, massive imports of
food, strategic defence needs, revamp of
agriculture (green revolution), long term
irrigation and water management
programmes started.
 1970s: Decade of consolidation and
preparation for a change; increase in
industrial and agricultural productivity;
beginning of de bureaucratization of the
economy
 1980s: Direct import controls relaxed,
domestic regulatory barriers to entry,
expansion and access to technology relaxed.
• The process of economic reforms in the form of
liberalization and de regulation began in July
1991: known as the Great Indian Liberalization
Attempt. Features:
 Deregulation and reduction of governmental
controls.
 Greater autonomy of private investment
 Lesser use of public sector
 More opening of the economy to international
trade.
• What changed in the 1990s was the quality
of growth.
• It was no longer driven by any foreign
element.
• It produced world class goods and services
• Features of the emerging economy: In a
broad sense, the basic objectives of
planning in India can be grouped into four:
 Growth: After 1991, India has emerged as
the most vibrant and one of the fastest
growing economy.
 Modernization: Effort to promote industrial
growth; Increase in the contribution of the
secondary and tertiary sectors; Increase in
the work force in these two sectors; cheap
finance infrastructure, raw material supply,
marketing; change in technology of
cultivation; effective use of human skills.
 Self reliance: Reduction in the dependence
of foreign aid, diversification of domestic
production, reduction in import of critical
commodities, promotion of exports.
 Social justice: Improvement in the living
standards of the poor, reduction in
inequalities in asset distribution.
 Important Terms
• Gross Domestic Product (GDP): The sum total of
the money value of all final goods and services
produced in an economy during a year.
• Productivity: Output per unit of
land/labour/capital.
• Population explosion: A stage where the
population of a country increases very fast due to
a rapid decline in death rate, whereas the birth rate
is slow to fall.
• Poverty Line: It is drawn at that minimum level of
income which is needed to purchase basic needs of
subsistence for a household.
• Dualistic Economy: Coexistence of advanced and
primitive techniques of production.
• Vicious circle: A vicious circle is a situation in
which it is not possible to discriminate between
the cause and the effect of a phenomenon.