Indian Economy : Economic Growth and Development

Economic Growth and Development

Economic growth has been defined by Arthur Lewis as 'the growth of output per head of population'.

In other words, economic growth refers to an increase in per capita national income. It may be noted that the subject matter is growth and not distribution. For example, during the Industrial Revolution in the U.K., there was economic growth. But there was no improvement in the standard of living of the working classes because they were exploited and made to work for long hours at low wages.

According to Arthur Lewis, economic growth is conditioned by (1) economic activity, (2) increasing knowledge and (3) increasing capital. In other words, these three factors are labour, technical improvements and capital. We may add land or resources to the list.

Economic growth and economic development have received a lot of attention in the 20^th century. In an economy there must be balanced economic growth of all sectors - agriculture, manufacturing industry and the service sector. Only then, economic growth will benefit all sectors of the population. Not only that, economic welfare depends not only on the growth of output but on the way it is distributed among different factors of production in the form of rent, wages, interest and profits.

In the past, economic growth and economic development were used more or less with the same meaning. For example, they used rate of growth of income per capita or per capita GNP as index of economic development. And they wanted to see whether the rate of growth of per capita income was greater than the rate of growth of population. We have to note one more thing. The wellbeing of population depends on the rate of growth of 'real' per capita GNP. Real per capita GNP refers to the monetary growth of GNP per capita minus the rate of inflation.

In general terms, we may say if there is decline in poverty, unemployment, and inequality, there is economic development in the country. Otherwise, even if per capita income doubled, we cannot say there is economic development. So when we say there is development, there must be improvement in the quality of life. That means, people must have higher incomes, better education, better health care and nutrition, less poverty and more equality of opportunity. So according to Michael P. Todaro and Stephen C. Smith, 'development must be conceived of as a multidimensional process involving major changes in social structures, popular attitudes and national institutions, as well as the acceleration of economic growth, the reduction of inequality, and the eradication of poverty'.