Economic growth and development - Economic and Social Issues

Indian economy - Growth and Development

Each country has its own wealth and natural resources. The growth of an economy doesn't totally depend on the mere presence of the resources within the country. But it depends on how well those resources are being utilised in the growth and development of the economy.

RBI Grade B officers - Growth and development of the economy

Growth vs development

When it comes to the meaning of the individual words, Growth and Development, they look similar. But there is a difference when it comes to the economic growth and economic development.

Economic growth is a quantitative thing, whereas economic development is a qualitative one. Economic growth means increase in output, which can be easily measured, whereas economic development includes improvement in the quality of the goods produced, organising the method of production and also improving the quality of life. Therefore, the measure of economic development is not easy.

Economic growth can be calculated using the Gross Domestic Product and Gross National Product per year. There are two types of economic growth - extensive and intensive. Extensive economic growth means the country uses more of its natural resources and human resources and grow. While intensive economic growth means the country uses the available resources more efficiently.

Refer the complete Syllabus for Phase II of RBI Grade B officers

Effect of government on economic development

For an economy to run efficiently, there must be production and distribution of goods and services. But these depends on government that is in power. The policies and schemes were run according to the ruling government. Thus the government is likely to control the factors of production.

But, things changed. Countries started to think out of the box. After the fall of the Soviet Communist State, globalisation started spreading, helping the countries to follow more efficient policies.

Even the countries like China and Vietnam, which were communist countries previously,  started following western ideas on economic development. They followed a growth model based on investment in international trade.

The countries started realising that the markets should be effectively regulated or else they will fail.

At that time, they realised that the government is not efficient to regulate the market and finance. All the countries including USA accepted the need of a separate strong and independent regulators to maintain market and finance.

Government's role in India's economic development

Though our's is a mixed economy, after the independence our's was more a capitalist economy.

After independence, the government decided to go with a planned economy, encouraging industrialisation. At that time, most of the organisations belonged to public sector. The thought of going towards industrialisation was that, there was a very little capital in India. To overcome, this problem, they regulated the imports drastically. They neglected foreign trade in the name of economic growth. The government imposed many restrictions on investments in India.

They thought that this could reduce poverty, so they shifted the labour from agriculture to industries, as they felt agriculture is a less productive sector. During that time the objectives were indusrialisation and urbanisation.

But in the mid 1960s, the country was hit by drought and food shortage, which made the leaders to think and take steps to develop agriculture and also steps to reduce poverty at the same time.

In 1970s, the government relaxed controls on exports and imports and also promised excess subsidies which left them in trouble and bankrupted in 1991.

This was the beginning of the economic reforms in India. This crisis made the rulers rethink and frame policies. They took down unnecessary subsidies. Providing excess subsidies is more a burden to the government than economic growth. That was the time when or government opened doors for foreign investment and trade, taking into account the advise of world bank, which helped India to come out of that crisis by lending money.

The measures include - Encouraging foreign investment in the country, liberalising the imports, lowering the exchange value of Indian rupee.

The economic reforms and policy initiatives of 1991 played an effective role in the economic growth in India. Since then those reforms and policies underwent many changes and modifications to suit the changing economy and situations. But the one that remained unchanged was staying away from stopping the controls and restrictions, thus making India a more liberalised economy.

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