📜 Chapter 15: Economic

Development
1. Meaning of Economic Development
Context: Many people lead their lives full of material pleasure,

but the maximum people of the world are seen struggling for

existence. For the poor, physical pleasure, well-being, or resting is

an imagination only. The answer to how this situation originated

and how to come out of it is Economic Development.

Definition: Economic development shows a constant increase

in National income of a country. It is a process of social

change having many faces.

Components of Economic Development:

Economic Development means:

[Link] increase in national income of a country.

[Link] in per capita income of a country.

[Link] in life style of the people/change in living standard of

the people.
 Key Definitions:
 National Income: The total income of the country is called

"National income".

 Data: The National Income (GDP) of India increased

from ₹87,36,039 crores in 2011-12 to ₹1,35,67,192 crores

in 2015-16.

 Per Capita Income: Obtained by dividing the total income of

the country with the total population of the country.

 Living Standard: Includes facilities like obtaining food,

clothes, education, health services, transportation

services as well as shelter.

Conclusion for India:

Due to the increase in national income and per-capita income

after independence, there has been improvement in services

and facilities such as the availability of food grains, cloth,

electricity, education, health services, and shelter. These

requirements are fulfilled easily and in a better way compared

to the past, indicating that economic development is taking

place in India.
2. Difference between Economic Progress and Economic
Development
In the ordinary sense, both "economic progress" and "economic

development" show an increase, but there is a significant

difference between them.

Basis of
Economic Development Economic Progress
Difference
Developm
ent Qualitative. Quantitative.
Process
Considered
the stage
Stage Considered the first stage.
after economic
development.

Increase in production due Increase in

Change in to new researches (e.g., multi- production due
Economy fold increase in agriculture to increase in
production due to hybrid seeds). agricultural land.

Increase in national
Relation Increase in national income income
to of developing countries. of developed
Nations countries.

3. Features of Developing Economy

The economy of developed and developing countries is separated

on the basis of per capita income. As per the World

Development Report of 2004 of the World Bank, countries

 having less than $735 per capita income are categorized as

developing economies.

India is a developing economy , and these features are related

to India in greater or lesser measure.

Nine Features of Developing Economy:

[Link] Per Capita Income:

 National income is low, but the population growth rate is

high.

 Per capita income remains low, leading to a low living

standard of people.

[Link] Growth:

 Population growth rate is high.

 The rate is 2% or more in these nations.

[Link] on Agriculture:

 Main occupation of the people is agriculture.

 More than 60% of the population is dependent on agriculture

for employment.
 Contribution of agriculture in national income is about 26%.

[Link] Distribution of Income:

 Unequal distribution of income and factors of production is seen

in both cities and villages.

 The 20% rich people of the country share 40% of national

income.

 The poorest 20% people share 10% of the national income.

 Concentration of income and property is seen in the hands of rich

people.

[Link]:

 Ratio of unemployment is more than 3% of the total labour.

 Different types of unemployment are seen, such as: seasonal

unemployment, disguised unemployment, and industrial

unemployment.

 The period of unemployment is often very long.

[Link]:

 People who cannot satisfy primary necessities (food, clothing,

shelter, education, health) are called poor.

 In developing countries, such people constitute one-third of the

total population.

[Link] Economy:

 The economy is based on a dual or mixed system.

 Villages: See backward farming, old machinery, orthodox

social structure, and less production.

 Cities: See modern industries, new production process,

modern implements, and modern sophisticated lifestyle.

[Link] Infrastructure Facilities:

 Vital infrastructural facilities are lacking, which hinders the

development of a nation.

 Lacking facilities include: education, transportation,

communication, electricity, health facilities, banking.

[Link] of International Trade:

 Exports: Mainly agro-products, farm-products, and mineral

ores. These products have less demand and low rates, resulting

in less income.
 Imports: Mainly industrial products and machinery. The cost

of these products is high, so the expense on imports rises.

 Result: Adverse conditions of foreign trade lead to an increase

in foreign debt.

4. Economic and Non-Economic Activities

Activity Example Activities
Definition
Type Included
Earning or spending Activities of a farmer, an
Economic money for the exchange artisan, a
Activities of commodities or businessman, a
services. teacher.

Activities not aimed at Nurturing of a child by

Non- obtaining income or not the mother; activities
economic aimed at reciprocating of social services done
Activities something indirectly. by a social worker.

5. Structure of Indian Economy (Commercial Structure)

Various occupations and economic activities are classified into

three sections, which together are recognized as

the Commercial Structure.

 Sector
Activities Included Nickname / Contribution
Name
Agriculture and related Normally dominates in
activities: cattle rearing, developing
1. cattle breeding, fishing, countries. Contributes the
Primary poultry farm, collection of most in employment
Sector forest products, mining of generation and national
raw metal. income.

Small and large

2. Also acknowledged
scale industries,
Second as Industry. Includes
factories, construction,
ary production from a small pin
electricity, gas and
Sector to gigantic machines.
water supply.

Different types
As economic development
of services: trade,
rises, the importance of
3. communication, airways,
the industrial sector and
Service waterways, education, service sector increases in
Sector health, banking and comparison to the primary
insurance, tourism, and
sector.
entertainment.

6. Factors of Production
Production is done with the help of natural

resources and labor, utilizing different types of tools.

Four Factors of Production:

[Link]:
 Economic Sense: Includes different types of natural

resources.

 Examples: Forests, rivers, mountains, minerals present in the

interior of the earth, metals present on the earth surface.

 Conclusion: Land is a natural tool for production.

[Link]:

 Definition: Man-made instruments helpful in the production

process.

 Examples: Instruments, tools, houses, property, assets, and

investment.

[Link]:

 Definition: Mental or physical work done with the aim to

obtain monetary gain.

 Conclusion: Labour is a living factor of production.

 Examples: Work of farm laborers, workers, teachers, doctors,

artisans.

[Link]:
 Entrepreneur: The person who efficiently combines the

three factors of production (land, capital, and labor).

 Entrepreneurship: The process of co-ordinating the three

factors of production in a profit-making process.

7. Distribution (Allocation) of Factors of Production

Human wants are unlimited, while resources to fulfill them

are limited. Scarcity of factors of production will always exist,

leading every country to face problems related to the allocation

of resources.

Reasons for Allocation Problem:

[Link] Wants:

 Wants are uncountable and unlimited.

 Many wants originate from one want.

 Many wants arise due to the development of science and

technology.

 Selection among wants must be made in order to fulfill them.

[Link] Order in Terms of Necessities:

 Since resources are limited, individuals must decide which want

is more important.

 Wants must be satisfied in the order of priority.

[Link] Resources:

 Factors of production (natural wealth and man-made wealth)

are limited.

 They must be utilized judiciously, keeping selected wants in the

center.

[Link] Use of the Resource:

 Resources not only are limited but also have alternative usage.

 If a tool can be utilized in more than one way, it has multiple

usage, meaning the usage is alternative.

 Example: If wheat is sown in a land, bajra, maize, groundnut, or

any other yield cannot be cultivated. Other usage of the land

must be stopped.

 Goal of Distribution: Distribution is done to satisfy

the maximum possible demands.

 8. Methods of Allotment (Allocation) of Resources
Every nation attempts to achieve speedy economic development

by making the best possible allocation of resources.

Two Main Methods:

[Link] Mechanism (Capitalist System)

[Link] System

By mingling both systems, the Mixed Economy has developed.

(A) Market System (Capitalist System / Free Economy)

 Practicing Countries: Nations like America and Japan have

developed through this system.

 Core Principle: Resource allocation is done on the basis

of profit scope. Profit is at the center of production and related

activities.

 Role of Government: The government does not have any

specific economic policy or play any role in this method. This

system is also known as "Free economy" due to lack of state

interference.
 Controlling Force: Competition plays a vital role, controlling

the whole market like an "invisible hand".

Features of Market Mechanism System:

[Link]: Ownership of resources is either individual or

private.

[Link]: Profit is at the center of economic activities.

[Link] Choice: Consumers get a good opportunity of

choice.

[Link]: No government interference in this system.

[Link]: Distribution of resources is based on profit.

[Link]-making: Economic decisions are taken while keeping

the price mechanism in mind.

Benefits of Market Mechanism System:

[Link]: Economic freedom of the individual is protected.

[Link]: Resources of production are utilized to the greatest

extent and efficiently.

[Link]: Abundant production may be done.

[Link]: New explorations keep taking place, making

economic development faster.

[Link]: Quality of things improves because of competition.

Limitations of Market Mechanism System:

[Link] Focus: Production of luxurious commodities is

prioritized, while production of basic requirement

commodities is neglected or reduced.

[Link] Wastage: Natural resources are wasted due to a lack

of state policy.

[Link] Exploitation: Consumers are exploited due to a

lack of knowledge and ignorance about the market.

[Link]: Disparity of income increases due to

the centralization of property and income.

[Link] Risks: There is a fear of monopoly, economic

instability, and exploitation of labour.

(B) Socialist System

 Origin: Originated because of the limitations and failures of

the market system.

 Practicing Countries: Countries like Russia and China adopted

this system for fast economic progress.

 Core Principle: Social welfare is at the center, rather than

profit.

 Role of Government: The State owns all the resources of

production and manages the whole economy. All economic

decisions are taken by the state machinery after keeping

the requirement of the society in mind.

 Other Decisions: Production of resources and their prices are

decided by the State. Farming is also owned by the state.

Features of Socialist System:

[Link]: Resources are owned by the State.

[Link]: All economic decisions are taken by the state.

[Link]: Social welfare is at the center of economic activities.

[Link]: Laborers are paid wages in return for work.

Benefits of Socialist System:

[Link] Allocation: Production is done according to

the requirement of the society, so unimportant and

 luxurious items are not produced.

[Link]: Wastage of resources is not present as decisions are

taken by the state.

[Link]: Disparity of income and property is removed.

[Link] Protection: Consumers are not exploited.

Limitations of Socialist System:

[Link]: People do not get encouragement and

motivation to increase production because the resources are

state-owned.

[Link]: Lack of competition, contest, and research means

these processes do not get momentum in the economy.

[Link]: There is a lack of individual freedom in this system.

[Link]: Complete interference of the state creates a fear

of bureaucracy.

(C) Mixed Economy (Controlled Economic System)

 Goal: Attempts to remove the limitations of market and

socialist systems and assimilate the good elements of both.

 Co-existence: A system where the public and private sectors

co-exist and work as complementary rather than competitors.

 Ownership Structure:

 Individual/Private Ownership: Agriculture, trade, small

consumer goods industry.

 State Ownership: Basic key areas like heavy industries,

defense material factories, railway, electricity, roads,

irrigation.

 Role of Government (Control): The market is not completely

free, and the government lays control in different ways.

 Control Example: State lays heavy tax on the production of

unwanted things.

 Encouragement Example: Industries in backward areas are

encouraged by giving subsidy and relaxation in tax.

 Decision-making: Important place is given to economic

planning in taking economic decisions.

 Alternative Name: Also called "Controlled Economic

System" due to restrictions and control.

 Practicing Countries: Countries like India, France, and

England follow mixed economy.

Limitations of Mixed Economy:

Demerits are witnessed, such as:

 Economic instability.

 Lack of coordination.

 Inconsistent economic policy.

 Low rate of growth of economic development.

Global Trend:
Today, there is no country in the world where there is

an absolute market system or socialist system. Both

systems have lost their individual features and have assimilated

into mixed economy. The market system witnesses the

indulgence of planning and state interference, while the socialist

system witnesses economic relaxation and liberalization.