GROWTH AND DEVELOPMENT IN INDIA

Recently the clash of the two giants from the world of academic economics Amartya Sen  and Jagdish Bhagwati which was triggered by the review of Sen's new book- AN UNCERTAIN GLORY: INDIA AND IT'S CONTRADICTIONS has provided me an impetus to write this article while introspecting about the inner meanings of growth and development.

I was going through the reviews about this book but none of them were satisfactory. Most of them offered a one sided view . In economics like most other subjects of humanities there are no straight forward answers like a complete yes or complete no.

Before engaging ourselves with the main theme of growth and development let us try to understand growth and development in a simple manner. 

Progress , growth and development .We come across these three terms in most of the newspaper articles. The major problem with newspaper articles and economic survey and most of the government reports is that they assume that the reader has full knowledge about economics. 

Progress is a general term that denotes improvement in anything.

Growth in economics means an increase in economic variables over a period of time.Most important aspect of growth is quantifiability. i.e. it can be measured in absolute terms. 
Examples : food grain production in tonnes, road network in kms, GDP of a country etc.
Economic growth is quantitative progress.Economic growth is widely used term in policy making , economic analyses and also for comparing economies.

Till 1950s economists failed to distinguish between growth and development though they knew the difference between these terms.During 1960s in many countries growth was higher but the quality of life was lower.This resulted in defining economic development different from economic growth.

Development indicates the quality of life which might be seen in accordance with the availability of many variables such as  level of nutrition,healthcare facilities,level of education etc.

If the people are to be guaranteed a minimum level of quality of life by  providing above mentioned inputs , a minimum level of income has to be guaranteed for them.Income is generated from productive activities. It means before assuring development we need to assure growth,And higher economic development requires higher economic growth. But it does not mean that a higher economic growth automatically brings in higher economic development.

 Lets say for example two persons having same levels of income but spending differing  amounts of money on development.The first person might be giving  little attention to health ,education and going for saving while the second person might not be saving but takes  possible care of health and education.Here the second person necessarily will have higher  development in comparison to first person.

If economic growth is suitably used for the development it comes back to accelerate the growth  and ultimately greater and greater population brought under the arena of development.Similarly high growth with low development  and ill cared development finally results into fall in growth. 

Now let us consider our economic experts  take on growth and development. Sen believes that India should invest more in its social infrastructure to boost the productivity of its people and thereby raise growth, Bhagwati argues that only a focus on growth can yield enough resources for investing in social sector schemes. Investing in health and education to improve human capabilities is central to Sen’s scheme of things. Without such investments, inequality will widen and the growth process itself will falter, Sen believes. Bhagwati argues that growth may raise inequality initially but sustained growth will eventually raise enough resources for the state to redistribute and mitigate the effects of the initial inequality. 

We often hear of demographic dividend and its benefits that will accrue to our nation in the coming decades. But if we turn a blind eye to development aspects like health and education it will be dangerous to our economy.Demographic dividend occurs when majority of the population  is of working age and can contribute to the country's economy.When the majority of our population is educated and healthy only then it will result into a dividend.But our government spends very less on health and education fronts.

In India, around 46 per cent of all children below the age of three are too small for their age, 47 per cent are underweight and at least 16 per cent are wasted. Many of these children are severely malnourished.

Given its impact on health, education and economic productivity, persistent under-nutrition is a major obstacle to human development, impacting India’s much-awaited demographic dividend and the country’s prospects for future economic growth.Malnutrition affects children’s chances of survival, increases their susceptibility to illness, reduces their ability to learn, increases their chances of dropping out early from school, and makes them less productive in later life. Much of this undernourishment happens during pregnancy and in the first two years of a child’s life and without appropriate interventions, the damage to brain development and future economic productivity is largely irreversible.

India has a serious “infrastructure problem” in education as it does with roads, ports, public transportation, electricity, and so on. long-term inadequate spending and poor planning will catch up with India's booming economy at some point. In terms of human resource, it is not enough to have lots of young people — these young people need to be properly educated to fully contribute to the new economy. In order to reap the benefits of demographic dividend our government should  create sufficient  opportunities for the aspiring young Indians who will be the drivers of India growth story.

GROWTH AND DEVELOPMENT are complementary to each other. According to our socio economic conditions we need to have a right mix of efforts that lead to growth as well as development in the long run.There is no point in quibbling over which one is important .
Finally a balanced view of growth and development should be a more intelligent strategy that our policy makers need to adopt .

ECONOMICS AND ECONOMY

  
Economics studies the economic activities of human beings.Similarly political,social and administrative activities of mankind are studied by political science, sociology and public administration respectively.That is why these disciplines are called as  humanities as all of them study human activities.Economic activities include profit,loss,livelihood,occupation, wage,employment etc.

The relation between economics and the economy is that of theory and practice.While economics is a discipline studying economic behaviour of human beings,an economy is the real picture of things which emerge after follow up of some  theories dealt with in the economics.

Economy is economics at play in a certain region.Region is best defined today as a country, a nation- the Indian economy, the Russian economy etc.

Many countries  selecting same tools and remedies to to fight the same problems might have similar or dis similar results  during a given period. Why ?

Basically , economic theories are expectations of human behaviour  about their economic activities and as human behaviour depends greatly on many factors the results are likely to vary. So is the case with other disciplines of humanities such as sociology ,psychology  etc. It is not possible to study reality completely as reality is vast , unorganised and chaotic.

Economics is nothing but modifications in the past theories on the basis of contemporary results and experiences of economies.Economics has developed out of real life practices and it is from the practice to theory.


What is the focus of economics ?
If we take an  overall picture , its essence has been very simple - the betterment of human life on earth.
Improving living conditions of the humanity at large is the ultimate goal of economics.


The three models of economic systems.which we see coming up are basically the different stages in the evolutionary process of our experiments which define a better way of organising an economy.

Capitalistic economy:  
 The decisions of what to produce, how much to produce and at what price to sell are taken by the market, by the private enterprises ,with the state having no economic role. USA and other parts of Europe during1800s followed this model. 


State economy :  
  This form of economy came in reaction to the prevalent popular economic system of capitalism and proposed just the opposite.The decisions related to production, supply and prices were all suggested by the  state only.USSR and China followed this model.
                                


Mixed economy:  
While John maynard keynes , the english economist at cambridge university was enquiring   into the causes and cures of the great depression , he questioned the capitalist economic system being practiced through Euro America. He suggested the capitalistic order to  assimilate the goals of socialistic economy. Governments started producing and supplying some basic goods and services known as pubic goods to guarantee minimum level of nutrition ,healthcare,sanitation,education, social security there by giving   people more spare money to create demand for the goods and services which were part of the market. Capitalism redefined itself by including some useful traits of state  economy thereby giving rise to mixed economy. 


As Keynes has suggested the capitalist economy to move few steps towards socialistic economy,
Prof.Oscar Lange suggested the state economy to include some of the good things of the capitalist economy.
In 1985,China ,which is the ultimate example of a state economy started its preparation towards a market economy and announced its 'open door policy' ,the first experiment in 'market socialism'.

The world by the late 1980s  was having neither a pure example of capitalistic economy nor a pure example of state economy. The long standing debate as to whether the market economy or the state economy was the better was solved for all time to come.

The economic system of india was a mixed economy in pre -1991 years as it is in post 1991 years but the composition of state market mix has gone for a change in the future.


There are three possible roles for the state in the economy:-

1) As a REGULATOR of the economic system.

2)As a producer and supplier of private goods and services( here state earns profit as a private enterprise)

3)As a producer and supplier of 'public goods' or the 'social goods'(drinking water,sanitation,health care etc)


On the issue of regulating the economy there is no debate.But the selection of other two functions of the state in an economy made the real difference.

The economic system which selected both the roles 2 and 3 for the state under monopoly we call them state economies.

The economic system which left  both the roles 2 and 3 to the private sector we call them capitalistic economies.
.
Mixed economies had  at least kept one economic role fixed i.e 3( supplying public goods)

The responsibility of producing and distributing private goods could be well handled by the private sector as it is a profit fetching area.The state should not burden itself with this responsibility. But in the absence of private sector many countries in the world gave this responsibility also to the state.India is one among them.

But as the private sector became capable, in some countries this responsibility was given up by the state in favour of the private sector and better development has been possible.In this sense ,India delayed this process while in indonesia,malaysia, thailand and south korea the state did give up this responsibility allowing the entry of the private sector as a result of which more development took place.in those countries.


SECTORS OF AN ECONOMY:

 The three sectors of an economy are primary sector, secondary sector and tertiary sector.

Primary sector :  All those economic activities where there is direct use of natural resources as agriculture,forestry and fishing.

Secondary sector: This sector is called the  manufacturing sector which uses the produce of the primary sector as its raw materials.

Tertiary sector: It includes services such as education,banking, insurance, transportation etc.


Depending upon the share of the particular sectors in the total production of an economy and the ratio of the dependent population on them for their livelihood , economies are given different names.

Agrarian economy: 
If the share of primary sector is 50% or more in GDP of an economy.At the time of independence India was such an economy but now primary sector contributes to only 18% of gdp whereas 60% depend on the primary sector.Thus in monetary terms india is no more an agrarian economy but dependency ratio makes it so.


Industrial economy:
If the share of secondary sector is 50% or more in GDP of an economy, it is an industrial economy.
Western countries went for early industrialisation and became developed economies.

Service economy:
If the share of tertiary sector is 50% or more in GDP of an economy, it is a service economy.First lot of such economies in the world were the early industrialised economies.India emerged as being one of them when for the first time its tertiary sector contributed more than 50%  to its total value of its output.But one paradox remained there i.e: maximum dependency for livelihood remained on primary sector.


India has been basically the first case which directly had either over 50% of its GDP coming from the primary sector or the tertiary sector - an agrarian economy shifting directly to the service economy. It means India jumped the stage of being a fully developed industrial economy.

Without the full expansion of its industrial capacity , directly emerging as a service economy has created tougher  macro and micro challenges in front of the policy planners of the Indian economy.

Reference : Indian Economy by Ramesh Singh.