Economic Growth and Development

Unit - 2 (Economic Growth and Development)

"Development is about transforming the life of the people, not just transforming economies"

★  Economic growth & development

★  Inclusive growth

★  Human development

★  Sustainable development

★  Human development index

★  Gender inequality index

★  Global gender gap index

★  Global hunger index

★  World happiness report

★  Millennium development goals

★  Sustainable development goals 

Economic Growth - It refers to the process of increase in production of goods and services over a period of time.

It refers to the persistence increase in the real GDP or real per capita income.

Economic Development - It refers to that process of economic growth which is accompanied by improvement in well being of the people.

It refers to the progressive change in the socio-economic structure of the economy.

Difference between Economic growth and Economic development 

Economic Growth -

• Economic growth means increase in production.
• It can be quantified/measured (i.e., it is a quantitative concept).
• It is a uni-dimensional concept.
• It can be achieved without economic development.
• Indicators of Economic growth -
• Real GDP
• Real Per capita income

Economic Development -

• It means increase in production accompanied by social welfare.
• It is a qualitative concept.
• It is a multi-dimensional concept.
• It can seldom be achieved without economic growth.
• Indicators of Economic development -
• HDI
• MPI
• PQLI, etc.

Inclusive Growth - UNDP has defined it as "it is the process as well as outcome where all groups of the people have participated in the organisation in the growth and have benefitted equitably from it."

Difference between Economic development and Inclusive growth 

Economic Development -

• It mainly concerned with the outcome (which is economic growth with social well being).
• It can be achieved by redistributive policies like subsidies, pension, etc.

Inclusive Growth - 

• It is a process (i.e., means which is inclusive/participative in nature) as well as outcome (which is social welfare but inclusive in nature).
• It can't be achieved by redistributive policies. It can be achieved by providing basic facilities as well as employment opportunity.

Components of Inclusive Growth 

1. Increasing employability - It means to enable people to get job, i.e., enhancing human capabilities/resources. It can be achieved by providing better education, health service, skill training, skill development, women empowerment, etc.
2. Employment generation - It includes employment generation programs by the government as well as providing opportunity for self employment. It can be achieved by promoting investment, entrepreneurship, supporting MSMEs and promoting labour intensive sectors. 

Human Development - UNDP has defined it as "the process of widening people's choice as well as raising the level of well being achieved."

Human resource development - It refers to the formation of enhancing productive potential of human being. It is achieved by providing health care, education, skill development, etc.

It is also known as Human Capital Formation.

Sustainable Development - It refers to that process of economic development which can be sustained in future.

United Nations World Commission on Environment and Development in 1987 has defined it as "the development which meets the needs of present without compromising the ability/availability for the future generation to meet their own demand/needs.

It calls for inter-generation equity.

It is related to Carrying Capacity, i.e., capacity of environment to absorb the adverse impact of the human activities.

Features of Sustainable Development 

1. Increase in Real GDP 
2. Social welfare 
3. Conservation of environment

1 → economic growth

1 + 2 → economic development

1 + 2 + 3 → sustainable development

Dimensions of Sustainable Development 

1. Economic
2. Social
3. Environmental

Indicators of Sustainable Development 

1. Green GDP - It is the GDP adjusted for the cost of environmental degradation.
2. Genuine saving - Gross saving - a - b 
• where a = depreciation in man-made capital and b = depreciation in natural capital.

Threats to Sustainable Development 

1. Depletion of resources
2. Degradation of environment (pollution, soil erosion, deforestation, etc.)
3. Loss of biodiversity, etc.

Note - Uttarakhand became the first state in India to start tabulating Gross Environmental Product (GEP), which is a measure of the health of state's natural resources.

Measures to achieve Sustainable Development 

1. Reduce usage of non-renewable resources
2. Encourage the usage of renewable resources
3. Mining should be avoided
4. Adopt RRR (i.e., Reduce, Reuse & Recycle) measure
5. Not producing/using non-biodegradable products
6. Organic farming
7. Product subsidy should be replaced by direct benefit transfer (which encourage farmers to diversify their crop)
8. Alleviate poverty
9. Economic incentives like pollution tax, Carbon tax should be imposed
10. Public awareness
11. Environmental conversation programs
12. International cooperation on sustainable development, etc.

Indicators of Economic Development

Net Economic Welfare (NEW) 

• It was given by Paul Samuelson.

NEW = GNP + a - b

• where GNP = Gross National Product
• a = value of house wife services, value of leisure's, etc.
• b = expenditure on defence & civil administration, cost of environmental degradation, etc.

Real Per Capita Income 

• It is the ratio of National income to the total population of the country.

• It is regarded as an indicator of standard of living.
• It is not a satisfactory indicator of economic development because of the following reasons - 
• It is based on National income, which itself is not a satisfactory indicator.
• It does not take into account the composition of National income, i.e., it also includes production of toxic substances like tobacco, cigarettes, alcohols, etc. which does not increase welfare.
• It does not take into account the distribution of National income, i.e., inequality.
• It is silent on the welfare dimensions of the economic development like education, health, etc.
• Real per capita income is the indicator of economic development to some extent where as GDP does not reflect economic development.
• For Example - Norway topped Human Development Index whereas India ranks 132 (HDI 2022). India's GDP is very-very big as compared to Norway's but in the matter of development Norway is far ahead of India.

Physical quality of life index (PQLI) 

• It was given by M.D. Morris in 1979.
• It is based on 3 components -
• Infant mortality 
• Life expectancy at the age of 1 year
• Adult literacy

Human Development Index (HDI) 

• It was developed by UNDP in 1990.
• It was developed by a team of economist of UNDP led by Prof. Mehboob-ul-Hq. Prof. Amartya Sen is also associated in it.
• Since, 1990 it is being published every year by UNDP.
• It is based on the following three components/dimensions -
• Health (Life expectancy index)
• Life expectancy at birth 
• Knowledge (Education index)
• Mean year of schooling (for people of age more than 25 years)
• Expected years of schooling (for people of age less than 25 years)
• Standard of living (GNI index)
• GNI per capita

HDI 2022 and India -

• India ranks 132 out of 191 Countries.
• Overall points - 0.633
• Health - (Life Expectancy) 67.2
• Mean years of schooling - 6.7
• Expected years of schooling - 11.9
• GNI per capita (PPP $) - $6590

Mean years of Schooling - It is the average number of years of education received by people aged 25 years or above during their lifetime.

In 2010, UNDP introduced some changes to the report -

• Earlier to 2010, it was Adult literacy but not it is Mean years of schooling.
• Earlier to 2010, it was enrolment ration but now it is Expected years of schooling.
• Earlier it was GDP per capita income but now it is GNI per capita income.
• Earlier Arithmetic progression was used to but now Geometric Progression is used.

Reason to shift from GDP per capita to GNI per capita -

• GDP also includes money coming from foreign countries (foreign remittances) whereas GNI only includes money within the boundary of India.

Human development index is the indicator of economic growth as well as inclusive growth.

Criticism of Human Development Index 

• All dimensions are not included.
• Indicators are qualitative in nature and can't be perfectly quantified/measured correctly.

Procedure to find points on various dimensions -

Dimension index = It is the ratio of difference of actual value and minimum value to the difference of maximum value and minimum value. Its range is (0,1).

Maximum and minimum value of various dimensions and indicators are -

• Life expectancy at birth - (Max - 85 years) & (Min - 20 years)
• Mean years of schooling - (Max - 15 years) & (Min - 0)
• Expected years of schooling - (Max - 18 years) & (Min - 0)
• GNI per capita - (Max - $7500) & (Min - $100)

HDI of India -

Life expectancy index = (67.2 - 20)/(85 - 20) = 0.726

Mean of years of schooling = 6.7/15 = 0.446

Expected years of schooling = 11.9/18 = 0.661

Education index = Average of both indicators = 0.553

GNI index = Ratio of difference of natural log of Actual value and natural log of minimum value to the difference of natural log of maximum and minimum value.

Then, HDI = GM of three indicators.

Earlier Arithmetic mean is used instead of Geometric mean.

Reason for using geometric mean instead of Arithmetic mean -

• GM takes into account the inter-dimensional inequalities, i.e., Geometric Mean of the three dimensional indices of HDI has made it sensitive to inter-dimensional inequalities.

Classification of Countries as per UNDP 

1. Very high human developed countries (HDI ≥ 0.8)
2. High human developed countries (HDI - 0.7 to 0.8)
3. Medium human developed countries (HDI - 0.55 to 0.7)
4. Low human developed countries (HDI ≤ 0.55)

General classification of countries 

• Developed or Advanced Countries
• Under developed countries or Developing Countries or Third World Countries
• Least developed countries

Countries are designated as Least developed countries by United Nations Economic and Social Council in 1971.

Criteria (to be fall in least developed country category) -

1. Low income as per world bank
2. Low in Human asset index (education & health)
3. Low in Economic Vulnerability index (dependency on agriculture, remoteness from sea, etc.)

Total 47 Countries are Least Developed Countries.

Some other indices of HDR (Human Development Report) 

1. HDI (discussed earlier)
2. IHDI
3. MPI (discussed in previous article) - Click here to read
4. GII
5. GDI

IHDI (Inequality adjusted HDI)

• It accounts/considers inequality in the 3-dimensions of HDI by discounting each dimensions value according to its level of inequality.
• Dimensions and indicators of IHDI -
• Health (Life expectancy index)
• Life expectancy
• Knowledge (Education index)
• Mean years of schooling
• Enrolment
• Standard of living (GNI index)
• GNI Per capita

More the inequality, lesser will be inequality adjusted HDI.

Method to determine IHDI 

• Atkinson Method -

Inequality adjusted Dimension indices = GM/AM

Greater the inequality, lesser will be GM and thus lesser will be the Inequality adjusted Dimension index.

Difference between HDI and IHDI 

• HDI takes into account only intra-dimensional inequality
• IHDI takes into account both inter-dimensional as well as intra dimensional inequality.

GII (Gender Inequality Index) 

• It was released by UNDP.
• It measures gender disparity in respect of the following 3 dimensions.
• 3 Dimensions with their indicators -
• Maternal health
• Maternal Mortality rate
• Adolescent fertility rate
• Empowerment
• Male and female population having atleast secondary education (i.e., educational empowerment)
• Male and female share in parliamentary seats (i.e., political empowerment)
• Labour Market
• Male and female labour force participation ratio

GII and India (2021) 

• Maternal Mortality ratio - 133
• Adolescent birth rate - 17.2
• Share of female seats in parliament - 13.4%
• Female population having at least secondary education - 41.8%
• Female labour force participation ratio - 19.2%

Point of India in GII 2021 - 0.490

World average - 0.465

Denmark - 0.013

GDI (Gender Related Development Index) -

• It measures gender disparity in respect of 3-dimensions of HDI.

GDI = Ratio of HDI of females to the HDI of males, i.e., 

GDI = HDI (female)/HDI (male)

GDI and India (2021) 

• HDI female - 0.567
• HDI male - 0.668
• GDI = 0.849

World average - 0.958 (0.715 female HDI & 0.747 male HDI)

Difference between GII and GDI 

• Gender Inequality Index 
• It measures basic amenities like maternity mortality, empowerment and labour force participation ratio.
• It is easier to improve
• It can be improved by government measures.
• Gender related development index 
• It measures participation of women in the society
• It is comparatively harder to improve
• It can be improved by social awareness along with government measures.

Global Gender Gap Index 

• It was published by WEF (World Economic Forum).
• It is based on 4 dimensions.
• 4 dimensions are - 
1. Health & Survival
2. Educational attainment
3. Economic participation
4. Political empowerment
• Rank of India in Global Gender Gap Index 2022 - 135 out of 146 Countries.

Deprivation indices

MPI - discussed in previous article.

Global Hunger Index (GHI) -

• It was published by 3 organisations.
• International food policy research institute
• Welt hunger life
• Concern worldwide

Undernutrition - It is defined as calorie deficiency due to the lack of food or lack of proper balanced diet or illness.

Malnutrition - It is under or over nutrition.

Global hunger index is based on 4 dimensions -

1. Undernourished (Weightage - 1/3)
2. Child stunting (Low height for age), mainly because of chronic hunger (Weightage - 1/6)
3. Child wasting (Low weight for height), mainly because of acute hunger (Weightage - 1/6)
4. Child mortality rate (child below 5 years) (Weightage - 1/3) 

Range → (0,100)

India and Global Hunger Index 2022 

• India Ranks 107 out of 121 countries with a score of 29.1 that represents serious hunger in India.
• India ranks behind most of the neighboring countries like Pakistan (99), Sri Lanka (64), Nepal (81) and Bangladesh (84).
• The only South Asian country which perform worse than India is Afghanistan (109).

Classification of Countries as per GHI 

1. Low hunger (Score - 0 to 10)
2. Moderate hunger (Score - 10 to 20)
3. Severe/Serious hunger (Score - 20 to 35)
4. Alarming hunger (Score - 35 to 50)
5. Extreme hunger (Score - more than 50)

Psychological well being indices

• Gross National Happiness Index (GHI)
• World Happiness Report

Gross National Happiness Index (GHI) 

• It was developed by the 4th king of Bhutan (J. S. Wangchunk) in 1972.
• It is based on 4 pillars/dimensions -
1. Sustainable Socio-Economic development
2. Good governance
3. Reservation for cultural values
4. Conservation of environment

World Happiness Report 

• It was developed by United Nations Sustainable Development Solutions Network in 2012.
• It is based on 6 components/dimensions -
1. Real Per Capita Income
2. Healthy life expectancy
3. Social support
4. Perceived freedom to make life choices
5. Freedom from corruption (related to good governance)
6. Generosity (being plentiful)

India and Global Happiness Report 2022 

• India ranks 136 in Global Happiness Report.
• Finland being the most happiest place in the world.
• Madhya Pradesh and Andhra Pradesh has setup happiness index department.
• Delhi government introduced happiness curriculum in their schools.

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