MODULE 1 : ECONOMIC GROWTH AND DEVELOPMENT
CONCEPT OF ECONOMIC GROWTH AND DEVELOPMENT
Economic growth and development are often used interchangeably, but they represent different
concepts in economics.
Economic Growth
Economic growth refers to the increase in a country's real national income or per capita income over
time. It is typically measured by the rise in real Gross Domestic Product (GDP) or per capita GDP.
Key characteristics of economic growth include:
1. Increase in National and Per-Capita Income: Economic growth is often measured by the rise
in national income and per-capita income, which indicates an improvement in the standard of
living for the population.
2. Real Income Measurement: Economic growth is assessed by the increase in real national
income, reflecting actual increases in goods and services output, not just nominal income
increases due to price inflation.
3. Sustained Over Time: True economic growth involves a consistent increase in real income
over the long term, distinguishing it from short-term or seasonal fluctuations.
4. Productive Capacity: For growth to be sustainable, it must be based on improvements in the
economy’s productive capacity, such as technological advancements or enhanced
infrastructure.
Factors Affecting Economic Growth
The factors affecting economic growth are as follows:
o Infrastructure: Developing key infrastructure assets in the economy, like road machinery and
railways, increases efficiency and leads to economies of scale.
o Optimum utilization of natural resources: To ensure growth, it is of utmost importance that
the resources are best utilized to reduce wastage and boost economic productivity.
o Research and development: Investing research and development domain positively impacts
development, increasing labour productivity and reducing the cost involved.
o Human capital: Human resources are the key to the development of an economy. The higher
the skills and capacities of the workforce, the greater the development of the economy.
o Infrastructure development, including transportation and energy, impacts overall economic
performance.
o The availability and efficiency of financial resources, including banking systems, influence
economic growth.
o Global economic conditions and international trade dynamics affect India's economic
performance.
Economic Development
Economic development is a broader concept that encompasses sustained improvements in the material
well-being of society. It goes beyond mere income increases to include social, cultural, and
institutional changes that contribute to overall progress. Key aspects of economic development
include:
1. Comprehensive Improvement: Economic development involves changes in income, savings,
investment, and socio-economic structures, including improvements in technology, skills, and
institutional frameworks.
2. Qualitative and Quantitative Changes: While it includes quantitative growth in national
income, economic development also emphasizes qualitative improvements in the quality of
life, such as better health care, education, and poverty alleviation.
3. Equity and Welfare: Economic development aims to achieve more equitable income
distribution and enhance the overall well-being of the population through better employment
opportunities and social equity.
Factors Governing Economic Development
The factors affecting economic development are as follows:
o Human Resources: An increase in human capital in the economy leads to the overall growth
and development of the economy.
o Education: Better literacy rates among the population leads to better understanding. It not
only raises the workforce's efficiency but also leads to the development of the economy.
o Infrastructure development: Growth in the infrastructure parameter raises the economy's
efficiency and improves the standard of living.
o Natural resources: The availability of natural resources like forests, wildlife, minerals, etc, has
the potential to result in economic development.
o Capital formation: Capital formation is the country's savings and investment rate. The
economic development of a country depends on the rate of capital formation in the country.
Indicators of Growth and Development
Indicators of growth and development help assess the economic progress and overall well-being of a
country. Economic growth is typically measured using Gross Domestic Product (GDP), per capita
income, and industrial output. However, growth alone does not reflect the quality of life or equitable
distribution of resources.
Broader development indicators include the Human Development Index (HDI), Multidimensional
Poverty Index (MPI), Gender Inequality Index (GII), and Gini Coefficient (for income inequality).
Other key indicators are literacy rate, life expectancy, infant mortality rate, and access to basic
services.
These indicators provide a holistic view by combining social, economic, and environmental
dimensions.
Reliable indicators are essential for effective policy formulation, identifying gaps in human welfare,
and tracking progress toward inclusive and sustainable development goals.
MEASURES OF ECONOMIC DEVELOPMENT
There are several methods used to measure economic development. It describes common metrics like
gross national product (GNP) and per capita income, as well as indexes that account for other factors
like quality of life, education, health, and gender equality. These include the Physical Quality of Life
Index, Human Development Index, Capability Approach, and Gender Related Development Index. No
single measure can fully capture a country's economic development, so economists consider multiple
criteria to evaluate progress.
1. National Income as an Index of Development:
There is a group of certain economists which maintains the growth of national income should be
considered most suitable index of economic development. They are Simon Kuznets, Meier and
Baldwin, Hicks D. Samuelson, Pigou, and Kuznets who favoured this method as a basis for measuring
economic development. For this purpose, net national product (NNP) is preferred to gross national
product (GNP) as it gives a better idea about the progress of a nation.
According to Prof. Meier and Baldwin, “If an increase in per capita income is taken as the measure of
economic development, we would be in the awkward position of having to say that a country had not
developed if its real national income, had risen but population had also risen at the same rate.”
2. Per Capita Real Income:
Some economists believe that economic growth is meaningless if it does not improve the standard of
living of the common masses. Thus, they say that the meaning of economic development is to
increase aggregate output. Such a view holds that economic development be defined as a process by
which the real per capita income increases over a long period time. Harvey Leibenstein, Rostow,
Baran, Buchanan and many others favour the use of per capita output as an index of economic
development.
The UNO experts in their report on ‘Measures of Economic Development of Under-developed
Countries’ have also accepted this measurement of development. Charles P. Kindleberger also
suggested the same method with proper precautions in computing the national income data.
3. Economic Welfare as an Index of Economic Development:
Keeping in view the drawbacks of real national income and real per capita measures of economic
development, some economists like Coline Clark, Kindleberger, D. Bright Singh, Hersick etc.
suggested economic welfare as the measure of economic development.
4. Standard of Living Criterion:
Another method to measure economic development is the standard of living. According to this view,
standard of living and not rise in per capita income or national income should be considered an
indicator of economic development. The very objective of development is to provide better life to its
people through improvement or upliftment of the standard of living. In other words, it refers to
increase in average consumption level of the individual. But this criteria is not practicably true.
Let us suppose, national income and per capita both increase but the government mops up this income
with the way of heavy dose of taxation or compulsory deposit scheme or any other method, in such a
situation, there is no possibility to raise to average consumption level i.e., standard of living.
Moreover, in poor countries, propensity to consume is already high and stern efforts are made to
reduce superfluous consumption to encourage savings and capital formation. Again ‘standard of
living’ is also subjective which cannot be determined with objective criterion.
[Link] Quality of Life Index (PQLI)
The Physical Quality of Life Index was the most serious challenge to GNP per capita as the index of
development. It was invented by M.D. Morris in 1979. He constructed a composite Physical Quality
of Life Index (PQLI) relating to 23 developing countries for a comparative study. He combined three
component indicators to measure performance in meeting the most basic needs of the people. These
are:
1. Infant Mortality Rate
2. Life Expectancy at Age One
3. Basic Literacy Rate
This index represents a wide range of indicators such as health, education, drinking water, nutrition,
and sanitation. The PQLI shows improvement in the quality of life when people enjoy the fruits of
economic progress with an increase in life expectancy (LE), fall in infant mortality rate (IMR), and
rise in basic literacy rate (BLR).
Each indicator of the three components is placed on a scale of zero to 100 where zero represents a
defined worst performance and 100 represents a defined best performance. The PQLI index is
calculated by averaging the three indicators giving equal weight to each and the index is also scaled
from 0 to 100.
Limitations:
The PQLI tries to measure “quality of life” directly rather than indirectly. But it has its limitations.
Morris admits that PQLI is a limited measure of basic needs.
It supplements but does not supplant the GNP. It fails to dislodge GNP from its lofty perch.
It does not explain the changing structure of economic and social organization. It, therefore, does not
measure economic development.
Similarly, it does not measure total welfare.
Morris has been criticized for using equal weights for the three variables of his PQLI which
undermine the value of the index in a comparative analysis of different countries.
According to Meier, “Non-income factors captured by the PQLI are important, but so are income and
consumption statistics and distribution-sensitive methods of aggregation that are ignored by it.”
Despite these limitations, the PQLI can be used to identify particular regions of underdevelopment
and groups of society suffering from the neglect or failure of social policy. It points towards that
indicator where immediate action is required. The state can take up such policies which increase the
PQLI rapidly along with economic growth.
SUSTAINABLE DEVELOPMENT AND SDGs
Sustainable development is development that meets the needs of the present without compromising
the ability of future generations to meet their own needs.
The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the
United Nations in 2015 as a universal call to action to end poverty, protect the planet, and ensure that
by 2030 all people enjoy peace and prosperity. The Sustainable Development Goals are the blueprint
to achieve a better and more sustainable future for all. They address the global challenges we face,
including those related to poverty, inequality, climate change, environmental degradation, peace and
justice. The 17 Goals are all interconnected, and in order to leave no one behind, it is important that
we achieve them all by 2030.
The 17 SDGs are integrated—they recognize that action in one area will affect outcomes in others,
and that development must balance social, economic, and environmental sustainability.
Countries have committed to prioritize progress for those who are furthest behind. The SDGs are
designed to end poverty, hunger, AIDS, and discrimination against women and girls.
The short titles of the 17 SDGs are:
No poverty (SDG 1)
Zero hunger (SDG 2)
Good health and well-being (SDG 3)
Quality education (SDG 4)
Gender equality (SDG 5)
Clean water and sanitation (SDG 6)
Affordable and clean energy (SDG 7)
Decent work and economic growth (SDG 8)
Industry, innovation and infrastructure (SDG 9)
Reduced inequalities (SDG 10)
Sustainable cities and communities (SDG 11)
Responsible consumption and production (SDG 12)
Climate action (SDG 13)
Life below water (SDG 14)
Life on land (SDG 15)
Peace, justice, and strong institutions (SDG 16)
Partnerships for the goals (SDG 17)
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Sustainable Development Goals Significance
The Sustainable Development Goals (SDGs) cover a wide range of issues, including poverty,
inequality, climate change, environmental degradation, peace, and justice. They are significant for
several reasons:
1. Global Framework for Development: The SDGs offer a comprehensive framework for
addressing a wide range of issues, including poverty, inequality, climate change,
environmental degradation, peace, and justice. They are intended to be universal, affecting all
countries, regardless of their level of development.
2. Interconnectedness of Goals: SDG Goals are interconnected, which means that success in one
area can have a positive impact on others. For example, achieving gender equality (SDG 5)
can aid in poverty reduction (SDG 1) and health improvement (SDG 3).
3. Focus on Sustainability: The SDGs highlight sustainable development by meeting current
needs without compromising future generations. This includes fostering long-term economic
growth, social inclusion, and environmental protection.
4. Addressing Global Challenges: The SDGs tackle critical global challenges such as climate
change (SDG 13), biodiversity loss (SDG 15), and sustainable cities (SDG 11), which require
coordinated international efforts.
5. Long-term Vision: The 2030 Agenda for Sustainable Development provides a long-term
vision for the future, encouraging countries to think beyond short-term gains and work
towards lasting solutions that will benefit future generations.
Sustainable Development Goals Criticisms
While the Sustainable Development Goals (SDGs) are widely praised, they have faced several
criticisms. It includes the following:
1. Non-Binding Nature: Despite their ambitious name, the SDGs lack binding commitments.
Without an enforcement mechanism, accountability for their implementation is weak.
2. Underfunding: Currently, almost 40 per cent of all developing countries suffer from severe
debt problems. The shortfall is estimated at $4 trillion annually for developing countries.
3. Lack of Progress: The 2024 SDG Report reveals alarming stagnation in global progress: Only
17% of the SDG targets are on track. Nearly half of the targets show minimal or moderate
progress, and over one-third have stalled or regressed.
4. Vagueness: The SDGs have been criticised for their broad and ambiguous goals, such as
"living in harmony with nature" and "ending poverty in all its forms." Critics argue that this
vagueness renders the goals less actionable and measurable.
5. Negative Impacts of COVID-19: The pandemic has undermined countries' ability to achieve
the SDGs by 2030. It exacerbated existing inequalities and slowed progress, especially for
SDGs 3 (health), 4 (education), 6 (water/sanitation), 10 (inequality), and 17 (partnerships).
6. Excessive Number of Goals: With 17 goals and 169 targets, the SDGs can overwhelm
resource-strapped countries. A focused set of achievable goals would help address immediate
challenges while safeguarding progress in health and education.
Sustainable Development Goals in India
Sustainable Development Goals in India represent a comprehensive national commitment to achieving
the United Nations’ 2030 Agenda, focusing on eradicating poverty, ensuring inclusive growth, and
fostering environmental sustainability. The implementation of SDGs in India is spearheaded by NITI
Aayog, which tracks progress through the SDG India Index, measuring performance across 16 goals
and 113 indicators.
SDG India Index: According to the NITI Aayog’s SDG India Index, India's overall SDG score
improved to 71 in 2023-24, up from 66 in 2020-21 and 57 in 2018. All states have shown
improvement in overall scores since 2018.
Areas of Progress: Significant improvements in SDG 1 (No Poverty), SDG 8 (Decent Work and
Economic Growth), SDG 13 (Climate Action), and SDG 15 (Life on Land). SDG 13 (Climate Action)
saw the highest increase, from 54 in 2020-21 to 67 in 2023-24.
Government Initiatives: Programs like the Pradhan Mantri Awas Yojana, Swachh Bharat Mission,
Ujjwala Yojana, Jal Jeevan Mission, and Ayushman Bharat have helped drive improvements.
Further, initiatives like the Clean India Mission and the National Action Plan on Climate Change
address climate change issues.
Challenges: Despite progress, economic disparities, regional imbalances, and social inequalities
remain challenges, impacting the overall progress toward the SDGs.
Adequate funding and resource mobilisation for SDG-related projects remain a challenge.
India faces major environmental challenges, including air and water pollution, deforestation, and
climate change.
Sustainable Development Goals Report, 2024
Sustainable Development Goals Report, 2024, was released by the UN Sustainable Development
Solutions Network (SDSN). It emphasised that the world is significantly behind schedule in meeting
the Sustainable Development Goals (SDGs) established by the United Nations in 2015. Inequalities
are widening, the climate crisis is worsening, and biodiversity loss is accelerating.
SDG Targets Status: The report reveals that only 17% of SDG targets are on track. 18% showed
moderate progress, 30% showed marginal progress, 18% stagnated, and 17% showed regression.
Stagnation Since 2020: Globally, SDG progress has been stagnant since 2020, with SDG 2 (Zero
Hunger), SDG 11 (Sustainable Cities and Communities), SDG 14 (Life Below Water), SDG 15 (Life
on Land), and SDG 16 (Peace, Justice, and Strong Institutions) falling behind.
Country Progress Gaps: The rate of SDG progress varies significantly by country group. The Nordic
countries continue to lead in SDG achievement, with the BRICS making significant progress while
poor and vulnerable countries lag far behind.
Food Systems Delayed: The SDG targets for food and land systems are particularly off track. The
SDR assesses three potential approaches to achieving sustainable food and land systems. Globally,
600 million people will still be hungry by 2030; obesity is on the rise.
AFOLU Emissions Impact: Greenhouse gas emissions from agriculture, forestry, and other land use
(AFOLU) account for nearly one-quarter of total annual global GHG emissions.
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