Economic Growth & Economic Development

IN NEWS:

• Experts have raised concerns, and the Ministry of Finance has addressed concerns about the calculation of the GDP figure, which shows high GDP growth when inequality and unemployment still persist in the country.
• This raises the economic growth versus economic development debate in India.

MORE ON NEWS:

• India's gross domestic product (GDP) grew by 7.8 percent in the April-June quarter of the current fiscal (2023-2024), compared to a growth of 6.1 percent in the previous January-March quarter of fiscal 2022-2023, according to official data shared by the National Statistical Office.
• However, several experts have pointed out a discrepancy in India’s GDP statistics, which present a positive image of economic growth on billboards, while underlying issues such as rising inequalities, job scarcity, and a decline in manufacturing jobs persist.
• Also, a new report called the State of Working India (SWI 2023) by the Centre for Sustainable Employment within Azim Premji University says the relationship between India's GDP growth and the generation of employment for its people has become weaker over time.

ECONOMIC GROWTH & ECONOMIC DEVELOPMENT:

• The term economic growth is defined as the process whereby the country’s real national and per capita income increases over a long period of time.
• Economic development is defined as a sustained improvement in material wellbeing of society.
• As per the economist Amartya Sen, economic growth is one aspect of economic development. Also, the United Nations sees it as this: “Economic development focuses not only on man’s materialistic need but it focuses on overall development or rise in its living standards.”

WHY LOW ECONOMIC DEVELOPMENT DESPITE HIGH ECONOMIC GROWTH IN INDIA?

• Predominance of informal economy:
  • Despite witnessing rapid economic growth over the last two decades, 90% of workers in India have remained informally employed, producing about half of Gross Domestic Product (GDP).
  • The lack of regulatory control over this sector means that issues like labour exploitation, low income levels, and a lack of social security are rampant.
  • Hence, the informal nature of the economy is a major reason for hindrances to improvements in the quality of life and living standards of a large section of the population, thereby achieving economic development in the country.
• The backward state of Indian agriculture:
  • The Indian economy is heavily dependent on agriculture, and around 70% of the Indian population depends on farming, either directly or indirectly.
  • But agriculture in the country continued to be in a backward state due to the use of primitive methods of production and fragmented small land holdings.
• Unemployment:
  • Employment generation continues to be India’s main challenge.
  • For instance, the State of Working India (SWI 2023) report says the relationship between India's GDP growth and the generation of employment for its people has become weaker over time.
  • A good way to anlayse this relationship is to look at employment elasticity of growth, which is the extent to which employment grows when GDP grows by one unit.
    • It is calculated by dividing the employment growth rate by the output growth rate.
  • As per the analysis of data from various government reports, employment elasticity has consistently fallen between 1983 and 2017, showing that a 1% increase in GDP leads to a less than 1% increase in employment.
• Increasing economic inequality:
  • In spite of robust economic growth which averaged at over 7% per annum for over a decade, income inequality continues to expand, and the rate at which national poverty is diminishing is not proportionate to the growth in gross domestic product.
  • India stands out as a “poor and very unequal country, with an affluent elite”, where the top 10 per cent holds 57 per cent of the total national income while the bottom 50 per cent’s share is just 13 per cent in 2021, according to the latest World Inequality Report 2022.
• The strain of a large population:
  • India has overtaken China as the world's most populous country, according to UN population estimates. This pressure of a large population proves a hindrance in the way of economic development.
• Social structure of the country:
  • The social structure of India is still characterised by outdated traditions and customs like the caste system, laws of inheritance and succession. All these hampers inclusive development and growth in the country.
• Underfunded public services:
  • Despite having numerous schemes and measures, facilities for the common man remains underfunded. This is severe in the healthcare and education sector, where the public spending stands at a dismal 2.1% and 3% of GDP respectively.
• Manufacturing sector:
  • Industrial backwardness is major cause of low level of employment and thereby economic development.
  • For example, over the last two decades, the manufacturing sector’s proportion of GDP has remained unchanged at 17% of GDP. This is far lower than the rates in certain East Asian economies, which range from 25 to 35 per cent.
• Improper use of Natural Resources:
  • India being a part of Gondwanaland, is endowed with mineral wealth such as coal, iron, mica, aluminium etc., however, mining sector of India contributes only 2.2% to 2.5% to the GDP of the country.

 WAY FORWARD:

• Inclusive growth:
  • Inclusive growth is perceived as a necessary condition for economic development and reducing poverty from a long-term perspective that is broad-based and incorporates divergent actors.
• Increase in employment:
  • Special measures should be taken to solve the problems of unemployment and disguised unemployment.
  • Agriculture should be developed. Small scale and cottage industries should be developed in rural areas to generate employment.
• Industrial sector:
  • India cannot achieve balanced and well-rounded development without propping up the industrial sector.
  • With proper support from the government and effective implementation of schemes like Make in India, PLI, etc., the industrial sector can be transformed into a major employment generator.
• Harness the demographic dividend:
  • India should endeavour to strengthen the infrastructure and human resources, covering areas such as universal literacy and health for all, to harness the demographic dividend available to the country.
• Fulfilment of minimum needs of the poor:
  • Govt. should take suitable steps to meet minimum needs of the poor e.g., supply of drinking water and provision of primary health centres and primary education.
• Population control:
  • The population in India has been increasing. For better economic development, the growth rate of the population should be controlled.
• Equal distribution of income:
  • It is necessary that inequality in the distribution of income be reduced.

PRACTICE QUESTION:

Q. Critically analyse why India has low economic development even though it has high economic growth.