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ECONOMIC DEVELOPMENT AND PLANNING (UNIT-1)

Growth Vs Development

In the rural development perspective, it is imperative to distinguish growth and development. In common
knowledge, both seem to be same because economic progress is the basic majoring rod of both growth
and development. The earlier development thinkers such as A. Lewis, S. Kuznet etc. supports the view
that growth should not be separated from development because both are meant for easing the life pattern
to better standard of living.

On the other hand, there are authorities who advocate for differences in their opinion. The study of growth
ever shadows the problem of development, which is related with the basic infrastructure of social change.

The authors like J. Schumpeter, Oakum, Ohliln, Heirchman, Myint, G. Myrtle and a most of other thinkers
argue for development as a need of those communities, who are falling back in the race of development,
while growth is more concerned with forward marches. In a world, growth is the problems of development
community still go ahead. Development is concerned with inclusion of the least developed communities in
overall process of the development.

Professor Simon Kuznet studied the growth behavior of the advanced economies of the Western
European Countries and North American States. He came to a conclusion that growth proceeds with
three fundamental clusters of changing behavior.

Economic clusters

 Long term growth of national production and supply of vary many kinds of goods and services in
the market ever enlarging the areas of choice and freedom.

 Continuous growth of factor utilization and factor productivity both per unit and per head capital

Socio-political clusters

 Rapid structural change of social values and norms both progressing to the higher standard of
humanize rationality

 Change in institutional patterns ideological formats and norms of social relationship to move the
society along the achievement made in economic forms

Techno-scientific clusters

 Hub center of technological development and scientific invention in few centers

 Technological diffusion as in a restricted area as leaders and slow imitation at larger areas

Equity Vs Growth

Growth and equity are highly debatable topics. Equity concerns with the equality plus igniting the course
of development. It includes basic sense of competition and achievement and moving always forward i.e.
innovation. Equity, therefore, bases on equal productivity and equal footing justified inequality is the basis
of equality. Similarly justified deprivation of equality is the basis of equity.

Growth means progress or change in status quo affairs towards positive direction. The growth must be
participatory in the sense that every adopted people should have equal access to an opportunity in the
process of gradual change.
Growth declare the fact that the achievement of the growth should be disturbed in such a pattern where
everyone has equal opportunity to share. In Rural Development, growth means visible change in the living
stander of rural common masses. It ensures reduction inequality existing in rural setting, at least, in the
sharing of growth benefits in technical terms. It means the changing shift in social curve in the rural map
of the social setting. Hence, far the value added process is concerned; it says moving social and
economic indicators in the negative direction of poverty inequality and all kinds of discrimination.

H. B Chennery states that the change in the total growth must be supplemented with change in social-
economic indicator. In economic term, it means growth rate of 3% GDP must follow a 3% reduction in
absolute poverty. It is also known as the criteria of Growth and Equity.

The criteria of modern growth initiate with inevitable inequality. The various circle of higher income group
to have more saving power, more capital, more investment, more production and thus national growth
encourages the upliftment of national economy. On the other hand, vicious circle of poverty of low income
group with less saving power and low income discourage production pulling down national growth
process increase in income from growth distribution in favor of higher income group ultimately results in
higher income growth their by reducing poverty at latter stage of development. “Kuznets Hump Curve” or
inverted U,

Type of Development Process

Kuznet hypothesis doesn’t work in an impoverished economy of underdeveloped countries. The inequality
or growth without equity increases venerable chunks in the economy that underline the social justice and
distribution harmony in the society. For example, following table describing Indian and Sri Lankan pattern
of development explain the process of equity.

Country Income Growth Welfare increase


20% 40% 40% GNP E.Q PW
India 5.3 3.5 2 4.2 3.3 2.5
Srilanka 3.1 6.3 8.3 5.0 6.5 7.6

It is clear from the above table that equity oriented growth pattern have definitely positive impact in the
overall process of national growth. Robert Chamber explains in this growth process, the concerning
question is who gains and by what amount. Other way round who looses and why, in this process of
change there is a change in:

 Technical matters
 Infrastructure
 Daily business operation such as agriculture improvement. These changes addresses equity
aspect in policy making and decision making level.

This wide fluctuation in definition has three important implementations.

 Official classification should be treated with caution, e.g. a large proportion of settlement class as
rural in China, India and Nepal would fall within the urban category of the criteria.
 International comparisons are difficult as they may look as settlements, which despite being
classed in the same category may be different, in both population size and infrastructure. In
addition, the reliability of data on urbanization trends within one nation can be compromise by the
changes in the definition of urban center over time.
 Public investment in services and infrastructure tends to concentrate on centers, which are
defined as urban. Consequently, investment can by pass settlement not defined as urban within
national and regional urban system, larger cities is also tends to be favored with public
investment over small and intermediate size urban center, including those with importance role in
supporting agricultural production, processing and marketing.
Rural Development Characteristics

 General Poverty: Low income, low level of production capability, capital shortage and low
production income, consumption, poverty trap. Low level of social economic indicators, individual
unemployment and disguised social security and basic physical facilities, low level of standard
health, education, entertainment, calorie, corrupt social practices, dehumanized present relations.

 Agriculture main occupation

 Lack of industrial entrepreneurship

 Lack of capital and financial institutions: Capital is s blood circulation of industries, low income,
low saving, external finance, raising import and demonstration effects.

 Inefficiency technology and low level of technical know-how: Time consuming, labor intensive and
low level of technology are the characteristics of developing countries that in terms of low
productivity and high cost. Technical confusion: loss of existing technology and social problem of
adopting new technology. Introducing of the modern technology counter productive raising the
overhead cost.

 Natural resources and utilization problem: More that 2/3 of world stock of natural resources lies in
the developing countries. Those under-developed countries are poor due to the gap between raw
materials into finish products. Big industries of developed countries get raw materials from under
developed countries and exporting them. Under developed countries lacks required technology
and capital (vast different between raw material and finish product).

 Problem of human resource: Low quality of human resource, which is busy for manual labor,
quantitatively high low investment in human capital. Problem of brain drain.

 Foreign trade orientation: Foreign trade of the developing countries dominated by the primary
products, not finished products, value added on natural products. Foreign trade is important to
generate required foreign exchange. Too gaps saving investment gaps due to low income and
foreign capital gap to import required machines, tools and techniques. Foreign trade, the back
effect of exporting primary products, results backward economy operations producing backward
social and cultural unwanted impact.

 Demographic characteristics: The demographic characteristic of the UDCs is related with the
composition, distribution and quality level force. In composition, the average ratio of the children
(0-14yrs) comes around 40% of the total population and that of senior citizens comes around 5%.
It means 55 people have to earn to subsists the livelihood of hundred people comparatively this
ratio comes around 90% in developed countries. Comprising same 5% of old people or senior
people (60 above). The Marginal Rate of Substitution (MRS) not possible. High rate of Total
Fertility Rate (TFR) dominating the demographic structure.

 Political instability: UDCs political instability radical changes struggle for power, military, coup,
conspiracy due to poverty, dissatisfaction and rising expectation.

 Socio-cultural characteristics: Defective social value-aged old tradition, out mode (out of track)
and unproductive habit – fatalistic vision, introvert attitude etc. blind faith taboo.
Constraints of Developing Countries

The constraints of the developing countries facing rapid development process includes the societal insight
for political in competency administrative of the red trapezium. These constraints can be summarized in
the following points:

 Low-level equilibrium and stickiness


 Vicious circle of poverty
 Foreign exchange constraints
 Human resource constraints
 Social values and norms
 Political will power and development attitude
 International backwaters
 Inequality
 Technology fields

Low-level equilibrium and stickiness: Life style in developing countries at low-level expectation low and
achievement too. Let the things do what they are doing as the prime attitude of community. It limits the
prospects of change in better production, better technology, and value added uses. A rural area with
poverty characteristic stay poor because they resist change they are sticky to their life pattern that is
income, consumption, investment model that changing for generations.

Vicious circle of poverty: A poor man is poor because he is poor. Poverty is both cause and effect.
Poverty re-enforces poverty it is explained by R. Nurkse concept of vicious circle of poverty.

International co-operation is beneficial to the development process of under developing countries. But it is
not always so nor everywhere. There are many stop gaps faced by under developed countries due to
international pressure in their smooth development pattern under developed countries has no
competitions with the advance economist at least on three fronts: capital, Technology and manpower.
When under developed countries threat in international markets advance countries pull them back to
various non-economic and non-commercial majors.

Raising income inequality creation of upper income bracket. Consumption pattern not domestic but import
based. Rising trade gap no multiplier effects on nation income generation process.

SAARC

The countries of South Asia formed a regional organization called South Asian Association for Regional
Cooperation (SAARC) on December 7, 1985 to face the emerging trends of international forces. No
individual state in a position to address the opportunities and challenges unfolding in world scenario.
Common interest on regional basis, the best answer to beneficially utilized in individual economy. SAARC
co-operative move to get need of poverty shackles.

Established in 1995, first convention held in Dhaka, Bangladesh and SAARC Secretariat is in Kathmadu.
Eradication of poverty through market friendly policy measures, economic co-operation between and
among member states on strategic fronts are the main goal of the SAARC. South Asia Preferential Trade
Arrangement (SAPTA).
Vital statistics of SAARC countries is as follows:

Country Popolation GDP Per Illiteracy Life Human Human


Growth% growth% capita rate expectancy poverty development
income index report
Nepal 2.3 1.6 $ 230 48 59.5 49.7 0.472
Bangladesh 1.8 4.4 $ 360 59 61 48.3 0.478
Bhutan 2.9 7.7 $ 590 - 63 - 0.494
India 1.8 4.4 $ 480 43 63 46.3 0.577
Maldives 2.6 2.3 $ 2090 03 69 36.7 0.743
Pakistan 2.5 4.5 $ 410 57 63 46..8 0.499
Srilanka 1.2 3 $ 940 06 73 20.7 0.741

DEVELOPMENT THEORIES (UNIT-2)

Development theories explain the techniques and concepts which help to increase the growth rate. The
growth rate is nothing more than the interaction between rate of saving and rate of return. So, the growth
game states that the two variables saving rate and return rate are to be so integrated in the total
production process of national economy which produces the desired growth pattern.

A nation can’t consume all the production it creates within a year. Something is saved and this saving
power of people at large is called saving rate. The saved amount is meant for investment so that it helps
to produce more goods and services. The ratio of investment and its return is technically known as capital
output ratio. The growth game designs the increasing rate of saving capacity and decreasing rate of
capital output ratio.

Gr = s/k where, Gr = growth rate


s = saving rate
k = capital output ratio

This equation stats that growth rate of any economy can be increased either by increasing capital saving
ratio but decreasing capital saving ratio is a difficult problem because it involves overall improvement in
national life such as: political, social, administrative and even people’s attitudinal change. So, the easy
way is increase the saving capacity with increased in income. Increased income or foreign aids by proxy
may help increase the growth rate.

The aim of different development theory is to analyze the different aspects of growth game which
attempts to maximize the achievement.

Schultz transformation of traditional agriculture

Development is the war in agriculture. 3rd quarter of world population falls under domain of agriculture.
Prosperity of development in agriculture means development of state or countries.

Underdevelopment is an agriculture synonyms: Traditional agriculture, subsistence economy over


dependence on nature and natural forces, productive not determined by human effort only. Problem of
investment due to low productivity and human control. Less advancement through increased application
of scientific technology and mechanical intervention outside the main focus of development campaign.
Industry over shadows agriculture, lacking behind in the process of modernization through development.
Unfortunate conclusion of sinking down agriculture in the national economic stage.

Agriculture a dragging partner behind the cart. National priority-outside agriculture sometimes priority. In
agriculture not supported by priority in programming. Institutional problem remaining same, the risk and
profit separated and investment vis-à-vis rate of return not simulated.

These all paradigms of current development trends were challenge by Professor Schultz by introducing
agriculture as leas sector of development process. According to him, the war against underdevelopment
is to be fought in agriculture. It is the war and agriculture that determines the faith of development, if lost
development will fail and the prevailing chances must allowed agriculture to play positive role if
development is to be success.

According to Schultz, “farming based on factors of production that have been used by farmers for
generations” is traditional agriculture. The transformation of traditional agriculture signifies change in its
feudalistic characteristics possibility to capitalist pattern i.e. traditional poor and subsistence agriculture to
modern commercial grain farming driven by profit incentive.

Characteristic of traditional agriculture

1. Farming as a way of life, farming as a cultural performance rather than economic activities

2. Institutional setup-ownership &tenancy at different hands of production generally favoring feudal


lords

3. Technical properties – labor consuming and time lengthy production process, under minding both
per capital and per unit production.

According to Schultz, there is great potentiality of development in agriculture if such traditional agriculture
is transformed. According to him, agriculture is the basic sources of economic growth. It is the engine that
drives the development process of under developed areas or countries.

Problem of traditional agriculture

1. Rural psychology and values


2. Low managerial return to additional work
3. Low managerial productivity of capital
4. Low incentive to save and invest

A kind of constancy or stagnation is as follows:

a. State of arts constant


b. Sources of income constant
c. Life pattern constant
d. Level of contract and horizon

In general, traditional agricultures are divided into three types:

1. Tradition
2. Transitional
3. Modernization

Agent of change from traditional to modern

1. Introduce the modern method of agriculture farming – Green revolution. (that is in 1970’s)
 Biological improvement
 Technological improvement
 Financial and marketing improvement

2. Disequilibrium in the existing traditional farming

3. Enlargement of the productive capacity and production possibilities-R&D the need of poor farmer.

4. Farmers as decision makers to use new factors of production.

5. Supply of new technology and accessories increased through socio-economic development.

6. Finally, the modernization takes place as the farmers are able to handling faster production at
cheaper rate.

This process of changing traditional agriculture to modern one is the sole in build functioning of
investment in human capital - learning of new technology - farmers stakeholders of necessary knowledge
and skill – no schooling, on the job training at work side.

According to Schultz, “Acquire abilities for refinement and skill for improvement in the actual farm house
needs. ”To conclude, he said the knowledge that makes the transformation possible is the form of capital
which entails investment. The farmers should have access to and has his skill and knowledge to use what
science knows about soil, plants, animals and machines.

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