# AP Inter 2nd Year Economics Study Material Chapter 1 Economic Growth and Development

Andhra Pradesh BIEAP AP Inter 2nd Year Economics Study Material 1st Lesson Economic Growth and Development Textbook Questions and Answers.

## AP Inter 2nd Year Economics Study Material 1st Lesson Economic Growth and Development

Essay Questions

Question 1.
Explain the characteristic features of developed countries.
The per capita GNI of developed countries is far higher than the per capita GN1 of the developing countries like India and China. In the year 2012 the per capita GNI of U.S.A ($50.120) at official exchange rate was nearly 33 times and at purchasing power parity ($ 50.610) was 13 times that of India ($1.530). So there are high difference in the per capita incomes of developed and developing countries. 2) Importance of Non-agricultural sectors : The developed economies are non¬agriculture in nature. The industry and service sectors are well developed in these economies. The contribution of these sectors to income and the employment generation is very high when compared to the agriculture sector. The developed countries are industry and service sector oriented whereas the developing countries still depend on the agriculture sector. In the USA the proportion of people engaged in agriculture sector is just 1.6 percent and its contribution to GDP is 1.3 percent. 3) Abundance of capital and technology : The most important feature of developed countries is high rate of capital formation and wide spread use of modem and sophisticated technology. As the developed countries are high income countries their capacity to save is also very high. The banking system and financial institutions efficiently mobilize the savings. 4) Low level of unemployment: The unemployment in the developed countries is caused by the shortage of effective demand. The unemployment in these economies is cyclical and frictional. The rate of unemployment is marginal and the skills and mobility of labour are higher in the developed countries. 5) Better quality of life : A better quality of life is ensured in the developed countries due to the effective social security system, better compliance of pollution standards, availability of safe drinking water, well organized health care system and sanitation. The expenditure on education, research, training, skill formation and health is more in these countries. Question 2. India is a developing country – Discuss. Answer: The nature of the Indian economy is underdeveloped before the advent of planning. The pace of development has quickened since 1951. The following facts will prove that Indian economy is passing through a crucial phase of economic development. 1) National income trends : Over the four and half decades of economic planning, the economy registered significant advance. In 1950 – ’51 India’s net national product at factor cost at 1980 – ’81 prices was ₹ 40,454 crores. Since then it had increased to ₹ 91,71,045 crores in 2013 – ’14 from 4,71,619 crores in 1990 – ’91. 2) Rise in per capita income : A rise in per capita income is considered to be a better index of growth than the growth of net national product. In 1950 – ’51 India’s percapita net national product at 1980 – ’81 prices was ₹ 1,127. Since then it has raised by$ 1,070 to $1,530 in 2011. 3) Changing sectoral distribution of domestic product : An important index of development is a stealy decline in the contribution of agriculture and allied activities to gross domestic product. In 1950 – ’51 the share of agriculture and allied activites in the gross domestic product was 56.5%. The output of agriculture sector is 13.9%, secondary is 26.2% and tertiary sector is 59.9% in 2013 – ’14. 4) Occupational distribution of population : In India the occupational distribution of population has not changed significancy during plan period. In India where agriculture and allied activities accounted for 68.8% of work force in 1991 as against 72.1% in 1951. It is 48.9% in primary sector 24.3% in industrial sector 26.8% in tertiary sector in 2011. 5) Growth of production : The index of agriculture production increased by 100%. There is now in evidence much larger area under irrigation greater use of fertilisers and of improved agricultural practices. Indian agriculture has been greatly stabilised by the adoption of modem technology in farming. 6) Growth of basic capital goods industries : During British rule the share of basic and capital goods industries in the total industrial production was nearly one-fourth. From 1956, a large number of basic and heavy industries have been set up to make the country’s industrial structure strong. 7) Expansion in social overhead capital: Infrastructural facilities often referred to as economic and social overhead Indian planners were fully aware of the link between infrastructural facilities and general economic development. Their development can also be assured for better human-living. Tremendous amount of. progress achieved in the transport, banking, irrigation, education and communications. There has been a spectacular progress in the field of education and public health. The rate of literacy increased to 52% of population. 8) Science and Technology: For rapid economic progress, the application of science and technology to all economic and non-economic activities has become essential. 1958 the science policy resolution was adopted to provide positive incentives for the development and utilisation of science and technology in nation building activities. Our achievements in nuclear energy and in space technology have put India in the small select company of scientifically most developed countries. Question 3. Explain the features of developing countries with special reference to India. [A.P. Mar. 18, 17, 16] Answer: Developing economies are distinguished from developed economies on the basis of their per capita income. Most of the economies are agarian in nature and their present rate of capital formation is low and inadequate to meet the requirements of their development. According to United Nations ‘The countries which have real per capita income less than a quarter of the per capita income of the United States are developing countries”. The following are the characteristic features of developing countries with special reference to India. 1) Low per capita income : One of the basic features of developing countries is low per capita income. The low income and middle income countries combined together are called developing countries. The per capita G.N.I. of India has increased from$ 1,070 to $1,530 (2011) entered into the group of lower middle income countries. 2) Scarcity of capital :,The rate of capital formation is low in most of the developing countries. In the most of developing countries the saving rates range between 15 to 20%. According to C.S.O estimates the growth of gross domestic saving was 27-9% and capital formation was 24% in the year 2011 – ’12. 3) Unemployment: Wide spread unemployment is one of the important features of developing countries. In India unemployment is due to the deficiency of capital. There is disguised unemployment in rural areas. Around 60% of the population is depending on agriculture for employment. The planning commission estimated that there was a back logo of 37 million unemployed at the beginning of 11th plan and it was expected that 82 million by the end of the plan. 4) Demographic characteristics : The developing countries are facing the problem of heavy population. They are successfully reducing the mortality rates by improving the medical facilities but failed to control the birth rates, this led to population explosion. India is also facing the problem of heavy population. It’s population was 1210 million in 2011 and it increased to 1278 million in 2015. 5) Predominance of agriculture : One of the basic features of developing countries is that they are predominantly agrarian economies. The share of agriculture in G.D.P is between 20 to 30%. According to Indian economic survey 2013 – 14, 54.6% of the working population is engaged in the agriculture sector and it contributes 13.9% of the G.D.P. 6) High incidence of poverty: The another important feature of developing countries is the prevalence of mass poverty. The people in these countries suffer from low level of income, malnutrition, ill health and illiteracy. India is also facing the problem of poverty. As per Tendulkar committee reports, the planning commission has updated the poverty line. Based on this; The percentage of population living below the poverty line was 29.8% in 2009 – 10. 7) Income inequalities : The most important feature of developing economies is the disparities in income and wealth. Compared to the developed countries, the income inequalities are larger in the developing countries. According to 68th round of NSSO for the year 2011 – ’12 the monthly per capita consumption expenditure of the poorest 10% of the rural population rise by 11.5% in 2011 – ’12 compared with the 66th round for the year 2009 – TO. In urban areas, the growth was 17.2% and 30.2% respectively over the same period. 8) High density of population: The density of population is veiy high in the developing countries due to the large size of population. The density of population of the world was 50 per sq.km in 2011. It is in India was 382 per sq.km in 2011, where it was 3 in Australia, 33 in USA, 145 in China etc. 9) Low quality of life : The quality of life in the developing countries is very low in comparison with developed countries. These countries people suffer from malnutrition, high population, safe drinking water and lack of sanitation etc. The life expectancy at birth is below 65 years. 10) Technical backwardness: In the developing countries the production techniques backward due to lack of research and development. These countries use labour intensive technique because high population and capital deficiency. Indian economy is also technically backward. Modem and traditional techniques are used side by side in different sectors of the economy. It has affected the productivity in the economy. 11) Dual economy: Economists talk of various types of dualism existing in developing economies. They are (a) Social dualism (b) Technological dualism (c) Financial dualism. Indian economy also characterised by the dualism, the product and factor markets in India are divided with different degree of imperfections. Technological dualism is existed in India. There prevailed two kinds of economic sectors i.e., organised and unorganised sectors. The industrial sector uses the modem technology and agriculture sector still follows old method of production. 12) Price instability : The price instability is also basic feature of the developing countries. In India there is continuous price instability because of shortage of essential commodities and gap between consumption and production. Short Answer Questions Question 1. Differentiate between economic growth and development. Answer: The terms of Economic Growth and Economic Development are used synonymously, there exists some differences. According to C.P. Kindle Berger “Economic growth means more output and economic development implies more output and changes in the technological and institutional arrangements by which it is produced”. According to United Nations expert committee “Development concerns not only man’s material needs but also the improvement of the social conditions of his life. Development is therefore not only economic growth, but growth plus change social, cultural, institutional and economic”. The following are the main differences between Economic Growth and Economic Development. Economic growth 1. Economic growth refers to an increases in a country real output, of goods and services. 2. Economic growth is a single dimensional phenomenon. 3. Economic growth is mainly related to developed countries. 4. It is a narrow concept. 5. It does not require governmental intervention. 6. It denotes quantitative changes in the economy. 7. Economic growth does not indicate the distribution of income and wealth in the economy. 8. Economic growth can be compared with the physical growth of a person. 9. It can be measured. Economic development 1. Economic development refers to not only economic growth but also progressive changes in the social economic structure of a country. 2. Economic development is a multi dimensional phenomenon. 3. Economic development is generally related to developing countries. 4. It is a wider concept. 5. It is not possible to achieve economic development without the intervention of the government. 6. It denotes qualitative changes in the economy. 7. Economic development indicates the distribution of income and wealth in the economy. 8. Economic development is like overall improvement of a person. (Both physical as well as intellectual). 9. It cannot be measured. Question 2. Explain the determinants of economic development. Answer: Economic development is a complex process. It is influenced by both economic and non-economic factors. Broadly the factors determine economic development are classified as follows. 1) Natural resources : The development of any country on the availability of natural resources. Jacob Viner, WilliamJ.Baumol and W.A. Lewis attached great importance to natural endowments of a country for its development. The availability of quality and quantity or size of the natural resources can induce the development of agriculture and industrialisation. 2) Economic factors : (a) Capital formation: Economic development depends on capital formation. Capital formation depends on savings. It enlarges a country’s capacity to produce goods. Capital formation helps the formation of sound infrastructure. (b) Marketable surplus : Marketable surplus raises the incomes in the rural areas which in turn stimulates the demand for goods and services. So the development of other sectors in an economy depends on the marketable surplus. (c) Foreign trade : Foreign trade helps the countries to increase the production of goods and services through division of labour and specialisation. It will expand the output and employment in the economy. It also facilitates the developing countries to import capital, technology from the developed countries. 3. Non-economic factors : (a) Human resources : Population is an important factor in economic development. If a country can manage to use its man power properly. But in case, human resources remain either unutilised or underutilised it will be a burden on the economy. (b) Technical progress : Technology plays an important role in the economic development. The use of modem and sophisticated, technology enhances the productivity and production is all sectors of the economy. It minimizes the cost of production. Political freedom : Majority of the developing countries were under the British rule in the past. After they got independence all these countries have initiated planning strategy to achieve faster economic development. Hence political freedom is necessary to take strong and independent decisions regarding the development process. Social organisation : Development process requires the active participation of all sections of people in a country experiences suggest that the defective social organisation helped the rich to gamer the benefits of development. This has led to wide spread disparities among the people. Corruption : The rampant corruption at various levels in the developing countries has become a negative factor in the process of development. The factors like tax evasion, misappropriation of public funds and connivance of the officials are the major hindrances in the way of development. Desire to develop : The development process in any country depends on the people desire to develop. According to Richard T. Gill “Economic development is not a mechanical process. It is a human enterprise. It’s outcome will depend on the skill, quality and attitudes of the people”. Very Short Answer Questions Question 1. Economic growth. Answer: Economic growth refers to an increase in a country’s real output of goods and services. It related to developed countries. Question 2. Economic development. Answer: Economic development refers to not only economic growth but also progressive changes in the socio-economic structure of a countiy. Question 3. Per capita income. Answer: The income per head per year is called per capita income. It is obtained by dividing the national income with population of the country. Per capita income = $$\frac{\text { National income }}{\text { Population }}$$ Question 4. Planning commission’s definition of a developing country. Answer: “An under developed economy is characterised by the existence, in greater or lesser degree of unutilised or underutilised man power on the one hand and of unexploited resources on the other”. Question 5. Human capital. Answer: Expenditure on education, training, skill formation research and improvement in health is called human capital. Question 6. World Bank’s classification of world countries. Answer: The World Bank in its world development report (2014) classified the countries on the basis of Gross National Income (G.N.I) per capita. Countries are divided into 1. Low income countries : With G.N.I per capita of$ 1.045 and below.
2. Middle income countries : With G.N.I per capita ranging between $1.046 and$ 12.746. The Middle income countries are again divided into
a) Lower middle income countries with G.N.I per capita ranging between $1.046 and$4.125.
b) Upper middle income countries with G.N.I per capita ranging between $4.126 and$ 12.746.