Economic Growth and Economic Development

Since these indi­ca­tors are some of the strongest cor­re­lates of growth and do not fluc­tu­ate wildly, they speak very well for India’s medium-term growth prospects. It also has to be kept in mind that as the demo­graphic div­i­dend begins to pay off in India, with the work­ing age-group pop­u­la­tion ris­ing dis­pro­por­tion­ately over the next two decades, the sav­ings rate is likely to rise fur­ther. Sec­ond, the arrival of India’s cor­po­ra­tions in the global mar­ket place and infor­mal indi­ca­tors of the sophis­ti­cated cor­po­rate cul­ture that many of these com­pa­nies exhibit also lend sup­port to an opti­mistic out­look for the econ­omy in the medium to long run.

In the medium term, it is rea­son­able to expect that the econ­omy will go back to the robust growth path. To begin with, there has been a revival in invest­ment and pri­vate con­sump­tion demand. Sec­ond, India’s exports have recorded impres­sive growth. Fur­ther, infra­struc­ture ser­vices, includ­ing rail­way trans­port, power, telecom­mu­ni­ca­tions and, more recently but to a lesser extent, civil avi­a­tion, have shown a remark­able turn­around. The favourable cap­i­tal mar­ket con­di­tions with improve­ment in cap­i­tal flows and busi­ness sen­ti­ments, as per the Reserve Bank of India’s (RBI) busi­ness expec­ta­tions sur­vey, are also encour­ag­ing. Finally, and even though it is too early to tell if this is a trend, the man­u­fac­tur­ing sec­tor has been show­ing a buoy­ancy rarely seen before. There is also a sub­stan­tial pick-up in cor­po­rate earn­ings and profit mar­gins.

Over the last half decade or so, India has shown that it can with­stand the worst eco­nomic reces­sion to have tested the world since the 1930s. It also aptly jus­ti­fies the remark, made in some­what dif­fer­ent con­text, that “The Blue Bil­lion Rises”. There are cer­tain crit­i­cal lessons to be learnt from the sixty years of devel­op­ment expe­ri­ence.

1. Macro-eco­nomic sta­bil­ity is an essen­tial pre­req­ui­site for achiev­ing the growth needed for devel­op­ment.
2. Growth does not trickle down; devel­op­ment must address human needs directly.
3. No one pol­icy will trig­ger devel­op­ment – a com­pre­hen­sive approach is needed.
4. Insti­tu­tions mat­ter, sus­tained devel­op­ment should be rooted in processes that are socially inclu­sive and respon­sive to chang­ing cir­cum­stances.

Key terms#

Reserve Bank of India (RBI)

The Reserve Bank of India is Indi­a's cen­tral bank and reg­u­la­tory body respon­si­ble for reg­u­la­tion of the Indian bank­ing sys­tem.

Per Capita Income (PCI)

Per capita income is a mea­sure of the amount of money earned per per­son in a nation or geo­graphic region.

Research and Devel­op­ment (R&D)

Research and devel­op­ment are a part of busi­nesses, to gather knowl­edge to cre­ate new prod­ucts or dis­cover new ways to improve their exist­ing prod­ucts and ser­vices.

Least Devel­oped Coun­tries (LDC)

The United Nations defines LDCs as coun­tries that have low lev­els of income and face severe struc­tural imped­i­ments to sus­tain­able devel­op­ment.

Cap­i­tal For­ma­tion (CF)

Cap­i­tal for­ma­tion is a term used to describe a par­tic­u­lar coun­try's net cap­i­tal accu­mu­la­tion dur­ing an account­ing period.

Com­mon ques­tions#

What is meant by eco­nomic growth and devel­op­ment?#

Eco­nomic growth is a quan­ti­ta­tive change: a rise in the econ­o­my's out­put, reflected in the coun­try's per capita income. Devel­op­ment is qual­i­ta­tive. Growth pro­vides the means that improve the facil­i­ties and oppor­tu­ni­ties pro­vided to the peo­ple of the coun­try, result­ing in over­all devel­op­ment of the nation.

How is devel­op­ment related to eco­nomic growth?#

A grow­ing econ­omy pro­vides the resources for human devel­op­ment, though, as the lessons above show, growth does not auto­mat­i­cally trickle down. Sim­i­larly, if the peo­ple of a coun­try are pro­gress­ing, they will con­tribute to the over­all devel­op­ment. Thus, devel­op­ment and eco­nomic growth are inter­re­lated.