DEVELOPMENT AND PLANNING

Transcription

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2 ECONOMICS OF DEVELOPMENT AND PLANNING (THEORY AND PRACTICE) V.K. Puri (Retired) Shyam La Coege, Dehi University, Dehi S.K. Misra (Late) Hindu Coege, Dehi University, Dehi SEVENTEENTH REVISED AND UPDATED EDITION : 2017 ISO 9001:2008 CERTIFIED

3 V.K. Puri First Edition : 1986 Seventeenth Revised and Updated Edition : 2017 Pubished by : Mrs. Meena Pandey for Himaaya Pubishing House Pvt. Ltd., Ramdoot, Dr. Bhaerao Marg, Girgaon, Mumbai Phone: , ; Fax: E-mai: himpub@vsn.com; Website: Branch Offices : New Dehi : Pooja Apartments, 4-B, Murari La Street, Ansari Road, Darya Ganj, New Dehi Phone: , ; Fax: Nagpur : Kundana Chandak Industria Estate, Ghat Road, Nagpur Phone: , ; Teefax: Bengauru : Pot No , 2nd Main Road, Seshadripuram, Behind Nataraja Theatre, Bengauru Phone: ; Mobie: , Hyderabad : No , Lingampay, Besides Raghavendra Swamy Matham, Kachiguda, Hyderabad Phone: , Chennai : New No. 48/2, Od No. 28/2, Ground Foor, Sarangapani Street, T. Nagar, Chennai Mobie: Pune : First Foor, Laksha Apartment, No. 527, Mehunpura, Shaniwarpeth (Near Prabhat Theatre), Pune Phone: , ; Mobie: Lucknow : House No. 731, Shekhupura Coony, Near B.D. Convent Schoo, Aiganj, Lucknow Phone: ; Mobie: Ahmedabad : 114, SHAIL, 1st Foor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura, Ahmedabad Phone: ; Mobie: Ernakuam : 39/176 (New No. 60/251), 1st Foor, Karikkamuri Road, Ernakuam, Kochi Phone: , ; Mobie: Bhubaneswar : 5 Station Square, Bhubaneswar (Odisha). Phone: ; Mobie: Kokata : 108/4, Beiaghata Main Road, Near ID Hospita, Opp. SBI Bank, Kokata Phone: ; Mobie: DTP by : Asha/Sunanda Printed at : Geetanjai Press Pvt. Ltd., Nagpur. On behaf of HPH.

4 PREFACE TO THE SEVENTEENTH EDITION We have immense peasure in presenting the seventeenth edition of our book Economics of Deveopment and Panning which first appeared in The book has received wide acceptance amongst students of economic deveopment at Honours and Post Graduate eve, research schoars and teachers engaged in teaching this paper a over the country and aso by a arge number of candidates appearing in various competitive examinations. Keeping in view the pattern of questions asked in various university examinations and competitive examinations, we have been substantiay revising and updating our book over the years, and have aso been adding new sections and new chapters as and when the necessity arose. The present edition of the book continues this spirit of revision and updating further. The organisation, structure and contents of the present edition of Economics of Deveopment and Panning are as foows: Unit I on Basic Concepts and Issues in Economic Deveopment is divided into six chapters and discusses the characteristics of deveoping nations; the difference between economic growth and deveopment; the reationship between economic growth and deveopment; the reationship between growth and socia justice; the concepts of basic needs approach, entitements and capabiity; the concept, components and importance of human deveopment; the obstaces to growth and deveopment; and a historica perspective on economic growth. Unit II expains the genera theories of economic growth and deveopment ike the cassica theories of growth (incorporating the views of Adam Smith, David Ricardo and Thomas Mathus); Marx s theory of economic deveopment; Schumpeter s views on growth; Rostow s stages of economic growth; essence of Keynes s theory and its reevance for the deveoping countries; growth modes in the post-keynesian phase; and discussion on Harrod-Domar growth mode, neo-cassica theory of growth, Cambridge modes of growth, and forms and modes of technica change incuding their empirica appications and reevance for the deveoping countries. Unit III is devoted to a discussion on partia theories of deveopment. In this unit we expain and criticay evauate the theory of big push as propounded by Rosenstein-Rodan, Harvey Leibenstein s theory of ow eve equiibrium trap, Nurkse s arguments in favour of baanced growth and their criticism by Abert O. Hirschman and Hans Singer, Hirschman s unbaanced growth doctrine, the theories of socia and technoogica duaism, Lewis s mode of economic deveopment with unimited suppies of abour, and the Fei-Ranis mode of economic growth. Unit IV is devoted to a discussion of various domestic probems and poicy responses in the deveoping countries. In this Unit, a important probems that are faced by the deveoping countries on the domestic front have been discussed thoroughy, the aternative poicy prescriptions examined, and answers sought wherever feasibe. For exampe, a detaied discussion of the probem of poverty, income inequaities and unempoyment is undertaken and various poicy initiatives examined in detai. This part aso takes up a discussion of the popuation probem in the deveoping countries, roe of technoogy in economic deveopment, the (v)

5 interreationship between agricuture and industry, importance of capita formation, and the question of environmenta protection and sustainabe deveopment. Unit V opens up with a discussion on the reationship between trade and economic deveopment. Buiding on the arguments put forward by Prebish, Singer and Myrda emphasizing the deteriorating terms of trade for the deveoping countries, we argue that the trade prospects of the deveoping countries are not very encouraging. In this context, discussion in Chapter 34 is aso reevant as here we point out how in the new internationa economic order that is taking shape under the aegies of WTO, conscious efforts are being made by the deveoped countries to dictate terms and suppress the caims of the deveoping word. This Unit aso examines the oftrepeated question of trade strategy (outward oriented vs. inward oriented), arguments for and against protection, and the issue of internationa transfer of technoogy with specia focus on the roe of MNCs. Unit VI examines how economic deveopment is financed. The obvious choices of options here are (i) the roe and importance of monetary poicy, (ii) the roe and importance of fisca poicy, (iii) deficit financing, and (iv) the roe of foreign investment and aid in financing deveopment in the deveoping countries. Unit VII is concerned with issues and techniques of deveopment panning. Input-output anaysis, inear programming, shadow prices, cost-benefit anaysis, and various investment criteria are discussed in this unit and their appicabiity in the deveoping countries examined. We aso discuss the roe of market in the deveoping economies and the importance of State intervention. Roe of economic panning in the context of the probems faced by the deveoping countries is aso examined. Unit VIII is the ast unit of the book and is devoted to a discussion of the Indian deveopment experience. We have tried to criticay examine the various poicy initiatives undertaken by the Government of India during the panning period in practicay a important sectors of the economy. For exampe, the chapter on agricuture discusses trends in agricutura growth and the government s poicy reated to this sector. The chapter on industry discusses the industria growth trends, the government s industria poicy, the roe of pubic sector and the issue of privatisation. The chapter on foreign trade discusses the foreign trade trends and the foreign trade poicy whie the chapter on India and the Word Economy highights the issue of gobaisation and the impact of WTO on Indian economy. Various other chapters dea with the issues reated to the panning exercise ike the objectives and strategy of panning, a critica appraisa of the five-year pans, impact of economic reforms and the poicy of iberaisation, regiona panning poicy, etc. As is cear from the above isting of the issues contained in this edition, we have undertaken a comprehensive examination and review of practicay a theoretica and practica issues confronting the deveoping economies. In this eaborate exercise, we have benefited immensey from the ideas and thinking of a arge number of deveopment economists. We gratefuy acknowedge our inteectua debt to a of them. We aso express our deep sense of gratitude to Dr. Divya Misra, Associate Professor in Economics, Lady Shri Ram Coege, Dehi University, and Mrs. Kiran Puri for providing invauabe assistance and to our pubishers M/s. Himaaya Pubishing House for their whoehearted cooperation at a stages of the preparation of the present edition. V.K. Puri (vi)

6 PREFACE TO THE FIRST EDITION The probems of the Third Word countries are attracting increasing attention wordwide and a vast theoretica and empirica iterature has grown over the years deaing with the various issues of their economies. The students of Economics need to be exposed to this iterature through some standard book of a semi-textua nature. In this iterature it is now generay acknowedged that the Third Word countries cannot grow aong the cassica capitaist path of deveopment foowed by the U.K. or some other Western countries. These countries must evove their own strategies of deveopment, and in any case they cannot rey competey on the market forces for their economic progress. It is this necessity which has compeed these countries to adopt economic panning in one form or the other. The purpose of this book is not to present detaied anaysis of the deveopmenta paths chosen by the various deveoping countries. We wish to confine our anaysis to the basic theoretica issues of growth and deveopment, treatment of growth modes, eading theories of deveopment and underdeveopment, poicy measures widey undertaken in deveoping countries to acceerate the growth process and to tacke the probems arising in the progress of deveopment theory, techniques and the practice of economic panning and panning practice in India. The canvas of the book as stated above is quite extensive. It covers amost everything which the students doing a course in Deveopment and Panning are required to cover both at the Post-Graduate and the B.A. Honours eve in India. In this book we have taken particuar care to cover a number of issues which are generay gossed over in books deaing with the same subject. Books written by the Western economists on these subjects often carry anti-third Word biases. Some of these even go to the extent of egitimizing neoimperiaism and neo-cooniaism. Therefore, we have taken particuar care in criticay examining the viewpoints of these economists. An attempt has aso been made to present the viewpoint of the deveoping countries. This we hope wi provide students of deveoping countries with a perspective to examine and anayse the probems of their economies within their own framework. The book itsef is divided into seven parts. Part 1 deas with basic concepts and issues in economic deveopment. Part 2 entited Genera Theories of Economic Growth and Deveopment covers growth theories deveoped right from the time of the cassica economists. Part 3 provides an anaytica treatment of what are generay characterized as the partia theories of deveopment. This section aso examines the various strategies of deveopment. Parts 4 and 5 have poicy orientation. Whereas Part 4 deas mainy with domestic poicies pertaining to probems ike poverty and income inequaities, unempoyment, capita formation, choice of techniques, etc. Part 5 covers mainy internationa economic probems and poicies. Parts 6 and 7 dea with the panning theory and techniques and the practice of panning in India. In common with most textbooks, this book is aso an amagam of many schoars ideas. We accordingy gratefuy acknowedge our inteectua debt to many authors cited in the references, as we as to our numerous unnamed professiona coeagues. We wish to thank Dr. Prem Vashishtha, Senior Economist, Nationa Counci of Appied Economic Research, Shri R.N. Lokhar, Reader, Economics Department, Aahabad University and Ms. Divya Misra, Lecturer, Lady Sri Ram Coege, Dehi University, Dehi, for the stimuus they have given to us by raising many pertinent questions and making critica comments over a period of years. We aso consider it necessary to express our deep sense of gratitude to Mrs. Kiran Puri who rendered assistance in various forms in preparing the manuscript of this book. But we accept a responsibiity for such errors, omissions and other defects that may have remained in the text. Thanks are aso due to the Pubisher for bringing out the book in its existing form. Suggestions for further improvement of the book are wecome from a quarters. S.K. Misra and V.K. Puri (vii)

7 CONTENTS Unit 1 BASIC CONCEPTS AND ISSUES IN ECONOMIC DEVELOPMENT 1. Deveoping Nations: Diverse Structures and Common Characteristics 3 18 Deveoping Nations: Their Diverse Structures 4 Deveoping Nations: Their Common Characteristics 9 Suggested Readings Conceptuaising Deveopment What is Economic Deveopment? 20 Growth and Deveopment: A Contrast in Concepts 22 Measuring Economic Growth 23 Measuring Economic Deveopment 25 The Deveopment Gap 27 Modern Growth and the Rise in Internationa Inequaities 29 Convergence of Deveopment Leves 31 Suggested Readings Economic Growth and Socia Justice Kuznets Inverted-U Hypothesis 36 Growth-Distribution Trade-offs 40 Production Versus Empoyment 42 Basic Needs Approach 45 Hunger, Entitement and Capabiity 47 Suggested Readings Human Deveopment What is Human Deveopment? 53 Why Human Deveopment? 54 Essentia Components of Human Deveopment 55 Human Deveopment Index 56 HDI Ranking Versus Income Ranking 59 Gender Inequaity Index 63 Mutidimensiona Poverty Index 65 Links Between Economic Growth and Human Deveopment 65 Recasting Panning In Terms of Human Deveopment 67 Suggested Readings 68 Appendix: MDGs and SDGs 70 (ix)

8 5. Obstaces to Growth and Deveopment Vicious Circe of Poverty and the Scarcity of Capita 71 Inappropriate Technoogy 74 Popuation Exposion 75 Poitica and Administative Obstaces 77 Socio-cutura Obstaces 78 Externa Bottenecks 79 Suggested Readings Economic Growth in Historica Perspective Some Basic Concepts in the Economics of Growth 82 Characteristics of Modern Economic Growth 85 Interreations among Growth Characteristics 87 Historica Growth Experience: Its Lessons for Deveoping Countries 87 Suggested Readings 92 Unit 2 GENERAL THEORIES OF ECONOMIC GROWTH AND DEVELOPMENT 7. The Cassica Theories of Growth and Stagnation Adam Smith 95 Ricardo 98 Mathus 101 The Cassica Mode 103 Suggested Readings Marx s Theory of Economic Deveopment The Production Process 108 Socia Evoution 109 The Course of Production 110 The Accumuation of Capita 111 The Dynamic Process 113 Critique of Marx s Theory 114 Suggested Readings Schumpeter s Theory of Deveopment The Production Process 116 Schumpeter's View of the System 117 Growth and Deveopment of an Economy 118 Business Fuctuations and the Process of Deveopment 122 Suggested Readings 123 (x)

9 10. Rostow s Stages of Economic Growth The Stages of Economic Growth 124 Critica Evauation of Rostow's Theory 130 Suggested Readings Keynes s Theory and Underdeveoped Countries Essence of Keynes s Theory 134 Reevance of Keynes s Theory to Underdeveoped Countries 136 Keynes s Impact on Anaysis of Dynamic Probems 142 Suggested Readings Growth Modes The Post Keynesian Phase Steady States and Stabiity 145 Reaxation of the Assumption of Fixed Coefficients of Production: The Neo-Cassica Mode 146 Changes in Saving Propensity: The Cambridge Modes 146 Adjustment via Changes in the Rate of Popuation Growth 148 The Roe of Technica Progress 149 Differences between Cambridge and Neo-Cassica Approaches: A Note 149 Suggested Readings The Harrod-Domar Growth Mode The Conditions Required for Steady Growth 153 Domar s Mode of Economic Growth 154 Harrod s Mode of Economic Growth 156 Harrod-Domar Anaysis A Brief Resume 158 Comparison of the Two Modes 158 Critica Evauation of Harrod-Domar Modes 160 Suggested Readings The Neo-Cassica Theory of Growth R.M. Soow s Mode 164 J.E. Meade s Mode 169 A Critica Appraisa of Neo-Cassica Theory 176 Suggested Readings Some Cambridge Modes of Growth Kador s Mode 178 Joan Robinson s Mode 188 Appendix to Chapter 15: Kador s Mode of Distribution 196 Suggested Readings 198 (xi)

10 16. Forms and Modes of Technica Change Various Forms of Technica Progress 200 The Modes of Technica Change 205 Empirica Appications and Reevance for Underdeveoped Countries 208 Suggested Readings 210 Unit 3 PARTIAL THEORIES OF DEVELOPMENT 17. The Theory of the Big Push The Three Indivisibiities 213 Indivisibiities and Externa Economies 214 Roe of the State 215 A Critica Evauation of the Big Push Theory 216 Suggested Readings Critica Minimum Effort and Low Leve Equiibrium Trap Critica Minimum Effort Thesis 219 The Low-Leve Equiibrium Trap 226 A Critica Appraisa 228 Suggested Readings The Theory of Baanced Growth The Size of Market and the Inducement To Invest 231 The Need and Rationae of Baanced Growth 235 How Can Baanced Growth be Accompished? 237 A Critica Appraisa of the Baanced Growth Theory 238 Suggested Readings The Strategy of Unbaanced Growth Hirschman s Strategy 242 A Critica Appraisa of Unbaanced Growth Theory 247 Suggested Readings Theories of Socia and Technoogica Duaism The Theory of Socia Duaism 250 The Theory of Technoogica Duaism 255 Suggested Readings Lewis Mode of Economic Growth The Cosed Economy 259 The Open Economy 264 (xii)

11 A Critica Evauation 264 Suggested Readings Fei-Ranis Mode of Economic Growth The Agricutura Sector 267 The Industria Sector 269 Generation of the Agricutura Surpus 271 Agricutura Surpus as a Wages Fund 271 The Necessity of Labour Reaocation 273 Limitations of the Fei-Ranis Mode 275 Suggested Readings 276 Unit 4 PROBLEMS AND POLICIES DOMESTIC 24. Poverty and Income Inequaities in the Deveoping Countries The Concept of Poverty 280 Measurement of Poverty 282 Leves of Poverty in Deveoping Countries 287 Nature of Poverty in Deveoping Countries 294 Measurement of Income Inequaities 297 Income Inequaities in Deveoping Countries 301 Causes of Poverty and Income Inequaities 305 Poicies for Reducing Poverty and Income Inequaities 308 Suggested Readings Popuation and Human Capita Formation in Economic Deveopment Popuation Growth Trends 315 Causes of the Rapid Growth of Popuation 318 Approaches to Popuation Anaysis 321 Popuation and Economic Deveopment 323 Popuation Poicies for Deveoping Countries 326 Human Capita Formation 330 Manpower Panning 337 Suggested Readings The Probem of Unempoyment Types of Unempoyment 342 Unempoyment and Underempoyment Estimates 344 The Theory of Empoyment Determination and Deveoping Countries 345 Ingredients of an Empoyment Poicy 348 Suggested Readings 355 (xiii)

12 27. Capita Formation and Economic Deveopment Importance of Capita Formation 357 The Three Stages of Capita Formation 359 Sources of Capita 360 Capita-Output Ratio 366 Suggested Readings Technoogica Change and Deveopment Roe of Technoogy in Economic Deveopment 371 Contribution of Technoogy to Growth Production Function Approach 373 Choice of Techniques 377 The Question of Appropriate Technoogy 382 Suggested Readings Industriaisation and Agricuture The Meaning of Industriaisation 386 The Urge for Industriaisation 387 Factors Inhibiting Industriaisation 388 State Poicy and Industriaisation 389 Roe of Agricuture in Economic Deveopment 391 Agricutura Poicy in Deveoping Countries 395 Conditions for Rura Deveopment 398 Industry and Agricuture: Compementary 399 Suggested Readings Environment and Deveopment Environmenta Protection and Sustainabe Deveopment 402 Growth and Environmenta Degradation 404 Externaities, Environmenta Degradation and Market Faiures 407 The Goba Concerns 412 Suggested Readings 421 Unit 5 PROBLEMS AND POLICIES INTERNATIONAL 31. Trade Theory and Deveopment Experience of Deveoping Countries Benefits from Trade 425 Trade and Economic Deveopment A Critique 429 Trade Prospects for Deveoping Countries 435 Suggested Readings 437 (xiv)

13 32. Commercia Poicy, Baance of Payments and Trade Strategy Methods of Protection 440 Nomina and Effective Rates of Protection 441 Arguments for Protection 443 The Baance of Payments Probem 447 Choice of Trade Strategy Outward Oriented Vs. Inward Oriented 450 Cooperation among Deveoping Countries 455 Suggested Readings Internationa Transfer of Technoogy and MNCs Modes and Instruments of Technoogy Transfer 458 Roe of Mutinationa Corporations 459 Structure of Technoogy in Deveoping Countries 461 Basic Characteristics of Technoogy Transfer 461 Costs of Technoogy Transfer From MNCs 462 Suggested Readings Gobaisation and New Internationa Economic Order Under WTO The Meaning of Gobaisation 469 Gobaisation Trends 470 Factors Infuencing Gobaisation 471 New Internationa Economic Order under WTO 472 WTO And Deveoping Countries 474 Singapore Issues and Doha Decaration 480 Hong Kong Ministeria Conference 483 Bai Package 484 Nairobi Ministeria Conference 486 Suggested Readings 487 Unit 6 FINANCING ECONOMIC DEVELOPMENT 35. Monetary Poicy in a Deveoping Country Objectives of Monetary Poicy 491 Limitations of Monetary Poicy 495 Infation as a Deveopment Promotion Strategy 497 Structuraist Monetarist Debate 497 Suggested Readings Fisca Poicy in Deveoping Countries Importance of Fisca Poicy 501 Objectives of Fisca Poicy in Deveoping Countries 502 (xv)

14 Taxation: The Most Important Source of Pubic Revenue 504 Roe of Pubic Borrowing 512 Forced Saving 513 The Roe of Pubic Expenditure 513 Case for Interreated Monetary and Fisca Poicy 514 Suggested Readings Deficit Financing and Infation Deficit Financing In Deveoped Countries 518 Deficit Financing In Deveoping Countries 519 Case for Infationary Method of Financing 520 Evi Consequences of Infation 521 Infation and Growth: The Empirica Evidence 522 Deficit Financing Versus Taxation 524 Suggested Readings Foreign Investment and Aid Importance of Foreign Capita 526 Components of Foreign Capita 527 Private Foreign Investment 528 Foreign Aid 532 Fow of Foreign Aid to Deveoping Countries 534 Why Deveoped Countries Give Aid 535 Why Deveoping Countries Accept Aid 536 The Question of Absorptive Capacity 538 The Burden of Aid 539 Aid or Trade 541 Suggested Readings 542 Unit 7 DEVELOPMENT PLANNING: ISSUES AND TECHNIQUES 39. Market System Functions and Shortcomings Market Economy Order and Chaos 545 Functions of the Market 546 Case Against the Market Reguated System 548 The Market Mechanism and Deveopment 549 Suggested Readings State and Economic Deveopment Roe of State in Economic Deveopment 552 Agenda for Economic Reform Pea for Less State Intervention 558 Roe of State Need For A Baanced View 560 (xvi)

15 Consensus on Functions of the State 561 Suggested Readings Economic Panning Meaning of Economic Panning 563 The Rationae for Panning 565 Panning Practice 566 Panning by Direction and Panning through the Market 569 Financia and Physica Panning 572 Disenchantment with Panning 574 Suggested Readings Contros in a Panned Economy Meaning and Need for Economic Contros 578 Common Physica Contros 580 Limitations of Physica Contros 584 Suggested Readings Investment Criteria Margina Rue for Resource Aocation 587 The Rate of Turnover Criterion 589 The Socia Margina Productivity Criterion 590 The Margina Per Capita Reinvestment Quotient Criterion 591 The Margina Growth Contribution Criterion 593 The Time Series Criterion 594 Suggested Readings Project Evauation and Cost-Benefit Anaysis Project Evauation 597 Cost-Benefit Anaysis 599 Costs and Benefits to Be Considered 599 Vauation of Costs and Benefits 600 Measures of Profitabiity 602 Limitations of Commercia Profitabiity 606 Uncertainty and the Evauation of Pubic Projects 608 Reevant Constraints 609 Suggested Readings Shadow Prices Meaning of Shadow Prices 611 Need for Shadow Prices 612 Methods of Deriving Shadow Prices 615 The Principes of Shadow Prices 616 Limitations of Shadow Prices 623 Suggested Readings 623 (xvii)

16 46. Input-Output Anaysis Input-Output Anaysis Main Features 625 Uses of Input-Output Anaysis 626 The Assumptions of Input-Output Anaysis 627 The Input-Output Tabe 628 The Viabiity Test 633 The Feasibiity Condition 634 The Dynamic Input-Output Mode 634 Limitations of Input-Output Mode 635 Suggested Readings Linear Programming The Programming Approach to Deveopment 637 Linear Programming 638 Programming Technique Its Use in Soving Some Panning Probems 640 Concusion 645 Suggested Readings 646 Unit 8 DEVELOPMENT AND PLANNING IN INDIA 48. Evoution of Economic Panning in India Rationae, Features and Objectives Meaning of Economic Panning 649 The Rationae for Panning 649 Important Features of Indian Pans 650 Objectives of Economic Panning 651 Evauation of the Objectives of Economic Panning 659 Suggested Readings The Strategy of the Deveopment Pans in India Deveopment Strategy in the Earier Phase 663 The Second Five Year Pan Mode 664 Departures from the Mahaanobis Strategy 672 Agricutura Deveopment-Led Growth Strategy 673 The New Deveopment Strategy 675 Focus on Incusiveness and Sustainabiity 677 Suggested Readings Regiona Panning in India Regiona Panning Conceptuaised 679 Magnitude of Regiona Imbaances in India 680 (xviii)

17 Regiona Panning Poicy in India 687 Lack of Genuine Regiona Panning in India 691 Suggested Readings Nationa Income of India: Macroeconomic Overview The Nationa Income (NNP) Trends 694 Per Capita Nationa Income 698 Services Led Growth 700 Nationa Product by Industry of Origin 701 Suggested Readings Unempoyment and Poverty Nature and Estimates of Unempoyment In India 705 Causes of Unempoyment 710 Government Poicy for Removing Unempoyment 711 Incidence of Poverty in India 715 Mutidimensiona Poverty 721 Safety Nets for Poor Poverty Aeviation Programmes 723 Strategy of Poverty Aeviation 724 Suggested Readings Income Inequaities in India The Pattern of Income Distribution in India 728 Disequaising Growth during the Economic Reform Period 730 Causes of Income Inequaities in India 731 Government Poicy and Measures 733 Suggested Readings Capita Formation in India India s Capita Requirements for Economic Growth 738 Domestic Saving 739 Domestic Capita Formation 745 Suggested Readings Assessment of Indian Panning Targets and Achievements of Pans 750 Accompishments of Economic Panning 754 An Appraisa of the Panning Process 756 Estabishment of NITI Aayog 761 Suggested Readings Economic Reforms and Liberaisation The Origin of Economic Crisis in the Eary 1990s 765 Economic Reforms in India 766 (xix)

18 Macroeconomic Stabiisation 767 Structura Reforms 771 An Appraisa of Economic Reforms 777 Suggested Readings Twefth Five Year Pan Vision and Strategy for the Eeventh Pan 782 Macroeconomic Framework 783 The Financing Pattern 785 Sectora Issues 787 Suggested Readings Agricutura Deveopment During the Panning Period Roe of Agricuture in Indian Economy 792 Trends in Agricutura Production and Productivity 795 Green Revoution 798 Poicies for Agricutura Deveopment: An Overview 808 Suggested Readings Industria Deveopment and Industria Poicy Trends in Industria Production 817 Industria Poicy Prior To Review of Pre-1991 Industria Poicy and Liberaisation Trends 827 New Industria Poicy, Appraisa of New Industria Poicy 834 Nationa Manufacturing Poicy 837 Suggested Readings India's Foreign Trade: Trends and Trade Poicy Vaue of Exports and Imports in the Panning Period 842 Composition of Foreign Trade 844 Direction of Trade 849 Trade Poicy of the Government of India 852 Import Poicy: The Pre-Reform Period 852 Export Poicy: The Pre-Reform Period 854 New Trade Poicy: The Reform Period 856 Foreign Trade Poicy ( ) 861 Suggested Readings India and The Word Economy Gobaisation 865 India and WTO 871 Suggested Readings 874 Subject Index (xx)

19 TABLES Tabe 1.1 : Occupationa Structure in Some Deveoping Countries, Tabe 1.2 : GNI Per Capita in US Doars (2015) 11 Tabe 1.3 : Incidence of Poverty in Deveoping Countries 12 Tabe 1.4 : Agricuture in Some Seected Deveoping Countries 14 Tabe 2.1 : Per Capita GNP and the Physica Quaity of Life Index (PQLI) for Seected Deveoping Countries, Tabe 4.1 : Goaposts for Constructing the HDI according to HDR Tabe 4.2 : HDI Ranking of Seected Deveoped and Deveoping Countries, Tabe 4.3 : Simiar HDI, Different Income, Tabe 4.4 : Simiar Income, Different HDIs, Tabe 10.1 : Tentative Take-off Dates for Seected Countries 128 Tabe 10.2 : Tentative Maturity Years for Seected Countries 129 Tabe 24.1 : Cacuation of Mutidimensiona Poverty Index (MPI) 286 Tabe 24.2 : Income Poverty in Deveoping Countries 288 Tabe 24.3 : Mutidimensiona Poverty Index Tabe 24.4 : Cumuative Shares of Househod Incomes, By Quinties Casses of Househods 298 Tabe 24.5 : GNI Per Capita, 2014 (U.S. Doars) 302 Tabe 24.6 : Inequaities in Income Distribution (Percentage Shares by Popuation Groups) 303 Tabe 24.7 : Inequaities in Income Distribution in Some Deveoping Countries (Percentage Share in Income or Consumption by Percentie Group of Househods) 304 Tabe 25.1 : Popuation Statistics 316 Tabe 28.1 : Decomposition of Cross-Country Variance in Growth Rates 376 Tabe 28.2 : Contribution of Factor Inputs and TFP to Economic Growth in Deveoping Countries, Tabe 28.3 : Sources of Growth by Region of the Word, Tabe 34.1 : Goba Private Financia Fows 471 Tabe 38.1 : Top 10 Recipients of Foreign Capita Fows Among Low and Midde Income Economies 528 Tabe 38.2 : Fifteen Largest Recipients of ODA in Tabe 38.3 : Externa Debt Indicators for Seected Deveoping Countries 539 Tabe 46.1 : Composition of the Input-Output Tabe 628 Tabe 46.2 : Input-Output Tabe 629 Tabe 46.3 : Input Coefficients 632 Tabe 50.1 : Per Capita State Net Domestic Product in 15 Major States of India (At current prices) 681 Tabe 50.2 : Percentage of Peope beow the Poverty Line 682 Tabe 50.3 : Disparities in Human Deveopment Indicators 683 Tabe 50.4 : Cassification of States ( to ) 686 Tabe 51.1 : Sectora Composition of Growth 700 Tabe 51.2 : Estimates of GDP/GVA by Industry of Origin Percentage Distribution 701 Tabe 52.1 : Unempoyment Rates by Sex, Residence and Status (Per cent) 706 Tabe 52.2 : Unempoyment Rates (per 1,000) for and Tabe 52.3 : A-India Rura and Urban Unempoyment Rates for Tabe 52.4 : A-India Rura and Unempoyment Rates for Tabe 52.5 : LFPR, WPR and UR based on Usua Principa Status (UPS), Tabe 52.6 : Percentage of Popuation Beow the Poverty Line 716 (xxi)

20 Tabe 52.7 : Some Other Estimates of Poverty in India (Headcount Ratios) 717 Tabe 52.8 : Poverty Estimates Based on the 55th NSS Round (Year ) 718 Tabe 52.9 : Poverty Estimates Based on the 61st NSS Round (Year ) 719 Tabe : Mutidimensiona Poverty Index 722 Tabe 53.1 : Percentage Share of Househod Expenditure by Percentie Groups of Househods 730 Tabe 53.2 : Percentage Share of Househod Expenditure by Percentie Groups of Househods 731 Tabe 54.1 : Gross Domestic Savings (As per cent of GDP at current market prices) 741 Tabe 54.2 : Gross Domestic Capita Formation (Investment) (As per cent of GDP at current market prices) 746 Tabe 57.1 : Average Annua Growth Rate of GDP by Industry of Origin 784 Tabe 57.2 : Macroeconomic Parameters 784 Tabe 57.3 : Financing Pattern of the Twefth Pan 785 Tabe 57.4 : Pubic Sector Outay by Major Heads of Deveopment in Twefth Pan ( ) 786 Tabe 58.1 : Trends in Agricutura Production, to Tabe 58.2 : Yied Per Hectare of Major Crops 798 Tabe 58.3 : A-India Compound Growth Rates of Production and Yied of Some Crops, to Tabe 59.1 : Annua Compound Growth Rates in Index Numbers of Industria Production, 1951 to Tabe 59.2 : Rate of Growth of Industria Production (Use-Based) During Phase III (Base ) 820 Tabe 59.3 : Average Annua Growth Rate of Industria Production (Use Based) in Pre-Reform Decade and Post-Reform Period 822 Tabe 60.1 : Vaue of Exports and Imports in the Panning Period 842 Tabe 60.2 : Composition of Imports 845 Tabe 60.3 : Composition of Exports 848 Tabe 60.4 : Direction of India s Trade 850 (xxii)

21 BOXES Box 4.1 : Measuring Human Deveopment and Deprivations 66 Box 34.1 : Key Outcomes and Timeines of Hong Kong Ministeria Decaration Box 34.2 : Nairobi Package 486 Box 40.1 : Functions of the State 561 Box 48.1 : Rationae, Features and Objectives of Panning in India 653 Box 50.1 : Regiona Imbaance in Socio-economic Deveopment 686 Box 51.1 : Growth Performance in the Five Year Pans 695 Box 56.1 : Economic Reforms in India 768 Box 57.1 : Twefth Five Year Pan at a Gance Box 59.1 : Nationa Investment and Manufacturing Zones 838 (xxiii)

22 UNIT 1 BASIC CONCEPTS AND ISSUES IN ECONOMIC DEVELOPMENT 1. DEVELOPING NATIONS: DIVERSE STRUCTURES AND COMMON CHARACTERISTICS 2. CONCEPTUALISING DEVELOPMENT 3. ECONOMIC GROWTH AND SOCIAL JUSTICE 4. HUMAN DEVELOPMENT 5. OBSTACLES TO GROWTH AND DEVELOPMENT 6. ECONOMIC GROWTH IN HISTORICAL PERSPECTIVE 1

23 CHAPTER 1 DEVELOPING NATIONS: DIVERSE STRUCTURES AND COMMON CHARACTERISTICS Unti the Word War II rarey any interest was shown in the probems of the present day Third Word countries. In fact, anyone who attempted to anayse the specific probems of these countries earned the distinction of being known as a heretic in academic circes and was denied any respectabiity. However, since the Word War II there has been a proific growth of iterature on the deveopment probems of these countries. This contrast in the approach of economists before and after the Word War II is not at a surprising. Before the Word War II most of the present day deveoping countries of Asia and Africa were coonies of the West European countries. Though Latin American countries were poiticay free, yet their economies remained integrated with those of the metropoitan countries, more specificay with that of the United States. Under the circumstances, the existence of these countries was recognised either because they were the sources of raw materias and the capita required by the metropoitan countries or on account of the market they provided for the finished products of the atter. It was not difficut to perceive the reationship that existed between the deveopment of the metropoitan countries of the West and the underdeveopment of the coonies. However, no academic risked his reputation by treading this sensitive area. The position radicay changed after the Word War II. Asian and African countries succeeded in winning freedom one after another. Once these countries got independence, they decided to embark on the deveopmenta path. At this juncture the academics in the West coud not ignore their existence. In doing so there was a risk that economists with nationaist bend of mind in these countries coud have independenty anaysed the causes of their underdeveopment and woud have suggested a deveopment path which might not have suited the interest of the West. This woud have been disastrous for the Western cooniaism. Hence, the issues pertaining to the economies of former coonies suddeny became favourite subjects for study in the U.S.A. and other Western countries and over the past seven decades considerabe work has been done in this area. Most of it, however, underpays the roe of cooniaism in the underdeveopment of Asian, African and Latin American countries. In fact, in most of these studies one does not find any reference to the historica past of these countries. Taking a partia view of the present day reaity, poicy recommendations have been made in an ideoogicay biased framework. In addition, some economists have attempted to work out growth modes for the underdeveoped countries. In this book, it is not our purpose to survey whoe of this iterature. We sha confine ourseves to the main issues in economic deveopment. 3

24 4 Economics of Deveopment and Panning DEVELOPING NATIONS: THEIR DIVERSE STRUCTURES The poor countries of the Third Word are variousy described in deveopment economics. They are aternativey caed as backward, underdeveoped, ess deveoped and deveoping. Jagdish Bhagwati righty asserts, The choice of word depends argey on sensitivity of the audience and the sensibiity of the anayst. 1 It is precisey this reason why the word backward that gets cosest to the essence of the probems of poor countries is not preferred to the other three words. The word underdeveoped aso hurts the pride of the peope in poor countries, and as a resut by sheer eimination, the word deveoping has become the most favoured term though it inadequatey describes the nature of the economy in poor countries. We wi aso, without going into the merit of the term, describe poor countries as deveoping. 2 In its annua pubication Word Deveopment Indicators, the Word Bank cassifies economies according to their gross nationa income (GNI) per capita. Economies are cassified as ow-income, midde-income (subdivided into ower-midde and upper-midde), or high income. Word Deveopment Indicators 2016 cassifies the economies according to GNI per capita in 2015 as foows: 1. Low income economies $ 1,045 or ess 2. Midde income economies $ 1,046 $ 12,735 A. Lower midde income economies $ 1,046 $ 4,125 B. Upper midde income economies $ 4,126 $ 12, High income economies $ 12,736 and above Of the 214 countries for which data are provided in the Report, 31 fa in the category of ow income economies, 105 fa in the category of midde income economies (51 in ower midde income group and 54 in upper-midde income group) whie 78 fa in the category of high income economies. 3 At times, ow income and midde income economies are jointy referred to as deveoping economies. However, it may be pointed out here that some high income economies aso fa in the category of deveoping economies due to overa underdeveoped backward economic structure despite high income. A number of deveopment economists have in recent years argued that GNP or GNI per capita is not a correct measure of deveopment. Their argument is that the utimate objective is human deveopment and not just increase in per capita income. 4 The Human Deveopment Report pubished by the United Nations Deveopment Programme (UNDP) has, ever since its aunch in 1990, been ranking countries according to the eve of human deveopment achieved. The Human Deveopment Report 2016 has cacuated HDI for 188 countries and has cassified them into the foowing four categories: very high human deveopment, high human deveopment, medium human deveopment, and ow human deveopment. There are 51 countries in very high human deveopment category (the country occupying the first position being Norway with HDI of in 2015), 55 countries in high human deveopment category, 41 countries in medium human deveopment category and 41 countries in ow human deveopment category (the country at the ast position being Centra African Repubic with HDI of in 2015). Whie in terms of per capita income amost a deveoping countries are poor, they are diverse in physica resource endowments, economic conditions, size of popuation, eves of human deveopment 1. Jagdish Bhagwati, The Economics of Underdeveoped Countries (London: Word University Library, Weidenfed and Nicoson, 1971), p In the text, however, for expository convenience and in order to avoid semantic confusion, we sha use the words deveoping, underdeveoped, and ess deveoped interchangeaby to refer to the Third Word countries. This has now become a standard practice with economists deaing with the probems of the Third Word economies. 3. Computed from Word Bank, Word Deveopment Indicators 2016, (Washington DC., 2016), Tabe 1, pp For detais of this argument, see chapter 4 on Human Deveopment. Y:\DTP\Himaaya\Pending\MEGHA_b7\Himaaya\Pending book\economics of Deveopment and Panning_Misra & Puri_Revised\1st proof Correction\ch-1 Dt.:

25 Deveoping Nations: Diverse Structures and Common Characteristics 5 achieved, historica past and socia and poitica structures. Among the ess deveoped countries some are richy endowed with physica resources, some are quite arge with massive popuation having an advantage of arge domestic market, and some others have arge geographica area with sparsey inhabited popuation. Countries faing in any of these categories have one advantage or the other from the point of view of deveopment. In contrast there about 11 deveoping countries, incuding Bhutan, Guyana, Comoros and Vanuatu having popuation ess than 1.0 miion each. 5 Thus, in terms of size of popuation these countries are much smaer than the metropoitan cities of India, itsef a ess deveoped country. Sma countries generay suffer from the probem of imited resource endowment. Further, the imited size of the domestic market often inhibits the growth of arge-scae modern industries. In addition to these economic probems, sma countries face a number of poitica probems, the most important being their vunerabiity to externa poitica pressures. Thus, the task of deveopment is far more difficut in smaer countries. Let us now examine the foowing major components of the structura diversity of deveoping nations. The size of the country in terms of geographica area, popuation and income. Historica background. Resource endowments, both physica and human. The nature of economic panning and the reative importance of pubic and private sectors. Occupationa structure. Externa dependence. Economic inequaities and the extent of poverty. Poitica structure, power and interest groups. 1. Size and income eve. Geographica area, size of popuation and income eve of a country determine to a great extent, its deveopment potentia. Large geographica area often ensures avaiabiity of diversified resources. Simiary big popuation, if it is aso accompanied by a modest GNI, offers a reasonaby arge market which in turn provides inducement to invest. Thus, deveopment potentia of big countries ike China, India, Brazi, Indonesia, Pakistan, Bangadesh and Nigeria is certainy greater than that of reativey smaer countries of the Third Word. A the big countries referred to above have vast geographica area, and the smaest of these had a popuation as arge as 161 miion in In terms of GNI per capita, India and China rank pretty ow, yet because of their arge popuation they have reasonaby extensive domestic market which can sustain deveopment of most of the industries. Smaer countries ike EI Savador, Togo, Burundi, Honduras, etc., do not have extensive geographica areas. They have imited natura resources and thus fee constrained in their deveopment effort. Some smaer countries in the Midde East are, however, exceptionay rich in oi. They have managed to deveop rapidy during the ast three decades on the basis of their earnings from the export of oi. Large popuation without extensive geographica area and diverse resource endowments may prove to be a major obstace to deveopment. This is precisey the probem of Bangadesh. With a popuation of 161 miion in 2015 which is two and a haf times the popuation of France, its geographica area is merey one-fourth of France s area. Moreover, it does not possess any resources which coud contribute to its economic deveopment. Some Third Word countries, particuary in Latin America and Africa, are sparsey popuated. Their extensive and and diverse resource endowments indicate their deveopment potentias. So far these countries have faied to take advantage of these factors because of their past coonia expoitation. In future, how far they wi manage to deveop is difficut to predict. 5. Computed from data on 188 deveoping countries as presented in Human Deveopment Report, 2016 (New York, 2016), Tabe 7 on Popuation Trends. 6. Ibid., Tabe 7, pp Y:\DTP\Himaaya\Pending\MEGHA_b7\Himaaya\Pending book\economics of Deveopment and Panning_Misra & Puri_Revised\1st proof Correction\ch-1 Dt.:

26 6 Economics of Deveopment and Panning 2. Historica background. A deveoping nations do not have the same historica background. Most of them were the coonies of West European countries, particuary Britain and France. Begium, Netherands, Germany, Spain and Portuga were other European countries which had coonies in Latin America, Africa and Asia. Since Latin American countries have enjoyed poitica independence for a much onger period, they have reached a somewhat higher eve of economic deveopment than their counterparts in Asia and Africa. In Asia, countries of the Indian subcontinent and South-East Asia had suffered from the worst type of coonia expoitation. These countries got independence ony after the Word War II. Since then they have recorded some growth, but are sti among the most backward nations of the word. Among the Asian countries, Japan had the unique distinction of not being a victim of coonia expoitation and this expains why it managed to deveop aong the capitaist path, whie other countries with their coonia heritage remained underdeveoped. 7 Moreover, different coonia heritages and diverse cutura egacies of the indigenous peope in the Third Word countries have combined so differenty that atogether different institutiona and socia patterns have emerged in countries such as India, Sri Lanka, Indonesia, Vietnam, Phiippines, Ageria and Angoa. In fact, this diversity is so important that a these countries cannot hope to proceed aong the same path of deveopment. 3. Resource endowments physica and human. Unti the 1930s most economists expained deveopment and underdeveopment of different countries in terms of their physica resource endowments. The position has now changed consideraby. Now richness of resource endowments is regarded as just one factor in the economic deveopment of a country and that too of secondary importance. We are now aware of a number of countries which have faied to reach a high eve of deveopment in spite of a reativey favourabe ratio of cutivabe and to popuation and an endowment of significant raw materias. Resource avaiabiity is thus not a sufficient condition for economic change. Nonetheess without a minimum of resources there is itte hope for economic deveopment. Keeping this fact in view, if we compare the resource endowments of the various countries, we notice that a of them have not been gifted equay by nature. Latin America, for exampe, has impressive reserves of important mineras, natura gas and petroeum. A number of African countries are rich in ead, chrome, cobat, uranium, bauxite, phosphate, tin, manganese, oi, etc. Persian Guf countries possess arge petroeum reserves. Obviousy deveopment potentia of these countries is consideraby arger than that of a those countries where endowment of mineras and other raw materias is minima. Judging by this criterion, countries ike Bangadesh, Bhutan, Nepa, Lao PDR and Ethiopia are unfavouraby paced. In the ream of human resources we consider size, ski eves and socia-cutura characteristics of the popuation. These are important determinants of the pace and eve of economic deveopment. However, deveoping countries differ from one another in a these respects. Density of popuation which often determines the pressure on resources is aso not the same everywhere. Countries ike Bangadesh, Indonesia and India are densey popuated whie Zambia, Mozambique, Ethiopia and Angoa have thiny distributed popuation. But most of the countries where density of popuation is reativey ow have not reached even a modest eve of deveopment. Deveoping countries aso differ in the spread of education and its quaity. This expains the migration of skied abour from countries ike India and Pakistan to Persian Guf and African countries. 4. The nature of economic panning and the reative importance of pubic and private sectors. A underdeveoped countries have not chosen to deveop aong the capitaist path. For a considerabe number of years, China, Vietnam, Cuba, North Korea, Angoa and some other backward countries foowed the sociaist path of deveopment and, with this end in view, adopted comprehensive economic panning. One common feature of a these economies was that private sector was amost non-existent in them. However, the technique 7. C. Furtado seems to be right in his approach when he argues that underdeveopment is a discrete historica process through which economies that have aready achieved a high eve of deveopment have not necessariy passed. Deveopment and Underdeveopment (Caifornia: University of Caifornia Press, 1963), p Y:\DTP\Himaaya\Pending\MEGHA_b7\Himaaya\Pending book\economics of Deveopment and Panning_Misra & Puri_Revised\1st proof Correction\ch-1 Dt.:

27 Deveoping Nations: Diverse Structures and Common Characteristics 7 of panning adopted in these countries was not the same. They aso drifted away consideraby from what is known as the Soviet mode of economic panning. In most of the non-sociaist underdeveoped countries both pubic and private sector now co-exist. In this sense these are countries of mixed economic system. Some of these countries have aso decided not to rey entirey on the market mechanism. Having opted for what is often characterised as democratic economic panning these countries are strugging hard to break their ow eve equiibrium trap. 8 In Latin American countries, on account of the U.S. infuence, pubic sector is too sma. In the private sector foreign money seems to be we entrenched. The experience of these countries ceary suggests that foreign private investment in deveoping countries can at best be a mixed bessing. Some African and Asian countries in their effort to speed up their deveopment have paced great reiance on the pubic sector. However, widespread economic faiures of many pubic enterprises in countries such as Kenya, Tanzania, Ghana and Senega have raised serious doubts about the capabiities of these enterprises. Growth of pubic sector permits the government to participate directy in the productive activity, whie in a predominanty market economy it operates through a system of incentives and contros. Now with greater stress on iberaisation the dominant view in deveoping countries is that the roe of the pubic sector and the discretionary contros shoud be minimised. 5. Occupationa Structure. Athough deveoping nations are by and arge agrarian in character, yet it woud be wrong to think that the occupationa structure in a these countries is exacty the same. Tabe 1.1 provides information on percentage distribution of abour force in 15 deveoping countries. The contrasts Tabe 1.1 Occupationa Structure in Some Deveoping Countries, Country GNI per capita Agricuture Industry Services in 2015 (US $) Mae Femae Mae Femae Mae Femae % of mae % of femae % of mae % of femae % of mae % of femae empoyment empoyment empoyment empoyment empoyment empoyment Zimbabwe Vietnam 1, Honduras 2, Bhutan 2, Indonesia 3, Phiippines 3, Guatemaa 3, Georgia 4, Abania 4, Namibia 5, Thaiand 5, Azerbaijan 6, Coombia 7, Mexico 9, Maaysia 10, Source: Word Bank, Word Deveopment Indicators 2016 (Washington DC, 2016), Tabe 1 and Tabe The ow-eve equiibrium trap refers to a stabe equiibrium eve of per capita income at or cose to subsistence requirements. See Richard R. Neson, A Theory of the Low Leve Equiibrium Trap, American Economic Review, December 1956, p Y:\DTP\Himaaya\Pending\MEGHA_b7\Himaaya\Pending book\economics of Deveopment and Panning_Misra & Puri_Revised\1st proof Correction\ch-1 Dt.: