This chapter deals with the different issues and concepts that deal with the economic development.

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Theodore Rice
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1 ECONOMIC DEVELOPMENT This chapter deals with the different issues and concepts that deal with the economic development. ECONOMIC DEVELOPMENT: It is the process of growth in the National and Per capita Income of an economy accompanied by fundamental changes in the structure of the economy. It is a long-term increase in the per capita income. NATIONAL INCOME: The total value of all the goods and services produced within a country plus income coming from abroad. PER CAPITA INCOME: The total national income is divided by the total population. ECONOMIC AND NON-ECONOMIC ACTIVITIES: The activities that give people an income are called economic activities. Eg: people go for work, go to farms, factories, banks, hospitals, schools, hotels etc. The activities which do not give any income are called non-economic activities. Eg: doing a social work, helping the poor, educating the illiterate etc. Govt. also engages people in some activities or jobs. All those activities that are carried out within the framework is called an economy. When an activity results in a valuable and useful thing, it is called production of goods. Eg: from safety pin to aircraft. Activities such as transportation, medical treatment, postal services etc. are called production of services. When people use goods and services, it is called consumption. ECONOMIC ACTIVITIES: These are classified in to three categories, namely. Primary, Secondary and Tertiary. Primary activities: Activities that are associated directly with land and water.egs: farming, hunting, fishing, mining etc. Secondary activities: When primary goods are used to produce some other goods manually or by machines are called secondary activities. Egs:paper from wood, bread from wheat, and nails from steel bars etc. Tertiary activities: These activities link the producers and consumers. They are also as services.egs: To produce wheat, we use wheat, to take wheat from the field to the factory we use transport, we also use transport to take bread from factory to consumers.

2 ECONOMIES: In order to carry out various economic activities, some amount of resources needed, which are called as factors or production or inputs. In general land, labour, capital and organization are called factors of production. On the basis of ownership of resources, economies are classified into three types, namely Capitalist or Free market economy, Socialist or Centrally planned economy and Mixed economy. Features of Capitalist or Free market economy: 1) Individuals are the owners of production. 2) Profit is the main motive. But sometimes they are controlled by the Govt in the interest of the consumers. 3) The govt s role is restricted to administration and judicial responsibilities. 4) Consumers are free to choose whatever they can afford and from whichever they get maximum satisfaction and 5) Prices of goods are determined by market forces with least intervention of the govt. Egs; U.S.A, U.K and Japan. Socialist or Centrally Planned economy: 1) The govt is the owner of resources and engaged in the production of goods and services. 2) The Govt decides what to produce, how to produce and whom to produce. 3) Almost all working persons are employed and are paid by the govt. egs:china, Cuba and Vietnam. Mixed economy: 1) It is a combination of capitalist and socialist economy. 2) Production activities are carried out by both individuals and by the govt. Activities relating to the national security such as defence, arms and ammunitions are carried out by the govt. 3) The prices of goods and services produced by individuals are decided by market forces and the goods produced by the Govt are decided by the Govt and 4) The aim of the Govt is welfare of the people.

3 ECONOMIES BASED ON THE PER CAPITA INCOME: In modern times economies are also classified on the basis of per capita income. The World Bank has classified the countries into three categories: 1) Countries with a per capita income of about Rs. 4,35,500 or more as high-income countries.egs: U.S.A., U.K and Germany. 2) Countries with per capita income between Rs.35, 500 and 4,35,500 as medium income countries.egs: China, Iran and Argentina. 3)Countries with a per capita income of less than Rest. 35,500 as low income countries. Egs:India, Pakistan and Nepal. High income countries are known as developed countries.(1)industrially advanced(2)access to modern technology(3)major section of the people are engaged in non-agricultural activities.(4)high std of living and better quality of life. Low income countries are known as developing countries.(1)on the path of industrialization.(2)lack of modern technology(3)majority of the people engage in agriculture(4)std of living is low and lack better quality of life. ENTERPRISES: When a person or group pf persons are engaged in the production or distribution of goods or servicees which are meant mainly for the purpose of sale.it is called an enterprises. Private Sector The enterprises owned and run by individuals or a group of individuals with a aim of making profit are called private sector enterprises. (e.g- retail and wholesale shops, such as super markets etc and factories such as Hindustan Lever, Reliance etc. Public Sector Enterprises owned and run by the Government are called Public Sector enterprises. e.g. Public Transport system such as Road Transport, Railways, Airlines Large factories owned and run by the Government e.g. Indian Oil Corporation, Banks such as State Bank of India. Joint Sector

4 Enterprises which are jointly owned by the Government and Individuals and run are called Joint Sector Enterprises. e.g. Reliance Petrochemical Limited, Power Trading Corporation. RESOURCE ALLOCATION AND DECISION MAKING The activity of making choices in different situation is called economic decision making. E.g. If we have Rs. 5/- and would like to buy many things such as a pen, a pencil box, a chocolate etc. We cannot buy all these at Rs 5/-.Here we take a decision to buy the one which gives us the maximum satisfaction or the one which is most required.this activity is called decision making. WHAT IS MARKET OR MARKET FORCE Market is defined as the space where buyers and sellers engage in purchase and sale of goods. The price of a commodity is determined by demand and supply and many other factors. The demand for a good is defined as the amount of commodity for which people are willing to pay and ready to buy. When the price of a good rises, the demand tends to fall. But as the price of the good falls, the demand for it tends to rise. Supply of a commodity is the quantity that the suppliers are willing to put in the market. As the price of a good rises, its supply will also rise and as the price of a good falls, the supply of it also tends to fall. RESOURCE ALLOCATION IN DIFFERENT ECONOMIES Resource means: Allocation of money, production of a good in a country. (a) (b) (c) In a free market economy, the resources are private people who take decisions as to what to produce, how much to produce and for whom to produce depending upon the market demand and supply. In a planned or socialist economy the government takes decision in the interest of the people as what to produce, when to produce and for whom to produce and how much. In a mixed economy, the market determines the price of many commodities, but the govt takes decision when the market goes against the interest of the people. The Govt operates the enterprises and determines the price for the goods and services and not by profit motive.

5 SOME FEATURES OF INDIAN ECONOMY Indian economy is a developing economy and mixed in nature with the co-existence of public and private sectors. Some basic features of the Indian economy are as follows: 1. Agrarian Economy: Indian economy is an agrarian economy.more than 60% of the working population is engaged in agriculture.this percentage is very high compared to developed countries. 2. No change in the structure of Employment: The structure of employment has not changed drastically in the last 50 years.in 1951, the people engaged in primary,secondary and tertiary activities were 73, 11 and 16 percent respectively while in , it changed to 60,17 and 23 percent respectively. 3. The Role of Tertiary Activities: The role of tertiary activities has shown a significant increase in the national income from 28% in to 48% in Low per capita income: India s per capita income has increased from Rs.255 in to Rs.16,500 in , but still it is one of the lowest in the world. Countries like U.S.A and Japan have 74 times more per capita income than India. 5. Role of Planning:The pubic sector plays a dominant role in Indian economy.the economic activities are carried out through planning process. From to 2002, Indian Govt has carried out Nine Five Year Plans and outlay during this period has increased from 2400 crore to 8,59,000 crore.now Tenth Five Year Plan is in progress. 6. Role of public sector:the public sector plays a dominant role in Indian economy. Even after the adoption of new economy reforms i.e., liberalization,privatisationand globalization in Indian economy,public sector plays a vital role in infrastructural development. 7. Improvement in social sectors: Through economic planning, India has made much progress in the field of social sector particularly in the field of education and health. In 1951, only 9% of the females and 27% of the males were literate but in 2001, about 54% of the females and 75% of the males have become literate. Likewise, life expectancy has increased from 32 years in 1951 to 61 years in Inequalities of income and wealth:in Indian economy, income and wealth and other resources are concentrated in the hands of a few people. 9. Backward technology:technologies used in Indian economy particularly in agriculture are still far behind as compared to the developed countries. In India, unemployment, illiteracy, poverty, over population and unemployment are increasing in the economy.

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