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Semester 1: ELECTIVE I: INDIAN ECONOMIC DEVELOPMENT
Economic Development And Growth: Concepts of Economic Growth and Development, Measurement of Economic Development: Per Capita Income, Basic Needs, Physical Quality of Life Index, Human Development Index and Gender Empowerment Measure
Economic Development And Growth
Concepts of Economic Growth and Development
Economic growth refers to an increase in the output of goods and services in an economy over a period. It is commonly measured by the rise in Gross Domestic Product (GDP). Economic development, on the other hand, encompasses more than just growth; it includes improvements in living standards, poverty reduction, and the overall well-being of the population. Development aims for qualitative changes in the economy such as education access, health care improvements, and income equality.
Measurement of Economic Development
Measurement of economic development is complex and multifaceted, often requiring various indicators to provide a comprehensive view. These include: 1. Per Capita Income: This measures the average income earned per person in a given area in a specified year. It provides insight into the economic well-being of citizens. 2. Basic Needs Approach: This focuses on the minimum requirements for survival and well-being. It emphasizes provisioning of essential services such as food, shelter, and health care. 3. Physical Quality of Life Index (PQLI): This index combines indicators such as life expectancy, literacy rates, and infant mortality to evaluate the quality of life in a country, focusing on the basic human needs. 4. Human Development Index (HDI): The HDI is a composite index that measures average achievements in three basic aspects of human development: health (life expectancy), education (mean years of schooling), and standard of living (GNI per capita). 5. Gender Empowerment Measure (GEM): GEM evaluates gender inequality in economic and political life. It assesses the extent to which women participate in economic and political decision-making.
Economic Development Factors: Effecting Economic Development, Characteristics of Developing Countries, Population and Economic Development, Theories of Demographic Transition, Human Resource Development and Economic Development
Economic Development Factors
Effecting Economic Development
Economic development is influenced by a variety of factors including economic policies, infrastructure, political stability, natural resources, and education. These factors create an environment conducive to growth and attract investments. Effective governance and sound economic policies can drive development, while conflict and corruption can hinder it.
Characteristics of Developing Countries
Developing countries often display certain characteristics such as lower income levels, higher poverty rates, limited access to education and healthcare, and often a reliance on agriculture. Their economies may be less diversified, heavily dependent on primary sectors, and face challenges like underemployment and inadequate infrastructure.
Population and Economic Development
There is a complex relationship between population and economic development. A growing population can lead to a larger labor force and consumer base, but if job creation does not keep pace, it may also result in higher unemployment and strain on resources. Education and health play a critical role in leveraging population growth for economic benefits.
Theories of Demographic Transition
The demographic transition theory describes the transformation of countries from high birth and death rates to low birth and death rates as they develop. This process typically has four or five stages, reflecting changes in population growth and structure. Understanding this transition is essential for policymakers to address the related socio-economic challenges.
Human Resource Development and Economic Development
Human resource development (HRD) is vital for economic development as it focuses on improving skills, knowledge, and competencies of the workforce. Investments in education and training can enhance productivity, foster innovation, and ensure that human capital contributes effectively to the economy. A well-developed workforce attracts better job opportunities and spurs economic growth.
National Income: Meaning, Importance, National Product Concept, types of measurement, Comparison of National Income at Constant and Current Prices, Sectorial Contribution to National Income, National Income and Economic Welfare
National Income
Meaning
National Income refers to the total monetary value of all final goods and services produced within a country in a specific period, typically a year. It includes the income earned by both residents and non-residents for their contribution to production.
Importance
National Income serves as an essential indicator of a country's economic health. It reflects the economic performance, helps in policy formulation, assists in international comparisons, and is crucial for analyzing trends in economic growth.
National Product Concept
The National Product concept encompasses various measurements, such as Gross National Product (GNP), Net National Product (NNP), Gross Domestic Product (GDP), and Net Domestic Product (NDP). Each of these measures provides different insights into the economic activity of a nation.
Types of Measurement
National Income can be measured using three primary approaches: the production approach, which sums the value added at each stage of production; the income approach, which totals all incomes earned in the production process; and the expenditure approach, which adds up all spending on final goods and services.
Comparison of National Income at Constant and Current Prices
National Income measured at current prices reflects the value of goods and services at the prices prevailing in the year of measurement. In contrast, income at constant prices adjusts for inflation to reflect the value in terms of a base year, enabling a clearer view of real growth over time.
Sectorial Contribution to National Income
Different economic sectors contribute varying amounts to National Income, typically categorized into agriculture, industry, and services. The services sector often represents the largest share in developed economies, while agriculture may dominate in developing nations.
National Income and Economic Welfare
National Income is a useful measure of economic welfare, but it has limitations. It does not account for the distribution of income, environmental impacts, or non-market transactions, which can affect overall well-being.
Public Finance: Meaning, Importance, Role of Public Finance in Economic Development, Public Revenue-Sources, Direct and Indirect taxes, Impact and Incidence of Taxation, Public Expenditure- Classification and Cannons of Public Expenditure, Public Debt- Need, Sources and Importance, Budget-Importance, Types of Deficit -Revenue, Budgetary, Primary and Fiscal, Deficit Financing
Public Finance
Meaning of Public Finance
Public finance refers to the management of a country's revenue, expenditures, and debt load through various government and quasi-government institutions. It plays a crucial role in policymaking and economic stability.
Importance of Public Finance
Public finance is essential for maintaining economic stability, providing public goods, achieving income redistribution, and fostering economic development. It facilitates government intervention in the economy to correct market failures.
Role of Public Finance in Economic Development
Public finance contributes to economic development by funding infrastructure projects, education, and healthcare. It helps in resource allocation and supports economic policies aimed at growth and development.
Public Revenue Sources
Public revenue is generated from various sources, including taxes, fees, fines, and profits from state-owned enterprises. Tax revenue is the primary source of public finance.
Direct and Indirect Taxes
Direct taxes are levied on individuals and organizations, such as income tax and corporate tax. Indirect taxes are imposed on goods and services, such as sales tax and value-added tax.
Impact and Incidence of Taxation
The impact of taxation refers to its effect on economic activity, while incidence refers to who ultimately bears the tax burden. Understanding both is crucial for evaluating tax policy effectiveness.
Public Expenditure - Classification
Public expenditure can be classified as revenue expenditure and capital expenditure. Revenue expenditure covers day-to-day operations, while capital expenditure pertains to investments in physical assets.
Cannons of Public Expenditure
The cannons of public expenditure include economy, efficiency, elasticity, adequacy, and equity. These principles guide the allocation and use of public funds.
Public Debt - Need and Sources
Public debt arises when a government borrows money to cover budget deficits. It is necessary for financing public projects and managing economic fluctuations. Sources include domestic and international loans.
Importance of Public Debt
Public debt is crucial for funding infrastructure, stimulating economic growth, and managing periods of financial distress. However, excessive debt can lead to economic instability.
Budget - Importance
The budget outlines government revenue and expenditure for a fiscal period. It serves as a tool for economic planning, resource allocation, and fiscal discipline.
Types of Deficit
Deficits include revenue deficit (when expenditure exceeds revenue), budgetary deficit (overall shortfall), primary deficit (excluding interest payments), and fiscal deficit (total borrowing requirement).
Deficit Financing
Deficit financing refers to methods used by governments to meet budget deficits. It may involve borrowing, printing money, or utilizing reserves. Proper management is essential to avoid inflation and fiscal imbalance.
Money Supply: Theories of Money and Its Supply, Types of Money-Broad, Narrow and High Power, Concepts of M1,M2 and M3, Inflation and Deflation -Types, Causes and Impact, Price Index- CPI and WPI, Role of Fiscal Policy in Controlling Money supply
Money Supply: Theories of Money and Its Supply
Theories of Money
Theories of money include classical, keynesian, and monetarist schools of thought. Classical economists view money as a medium of exchange and argue that its functions can be fulfilled through any accepted medium. Keynesian economists emphasize the role of money in influencing economic activity and liquidity preference. Monetarists, led by Milton Friedman, focus on the importance of controlling money supply to manage inflation.
Types of Money
Money can be categorized into three types: broad money, narrow money, and high power money. Narrow money refers to liquid assets easily accessible for transactions, while broad money includes all liquid and near-liquid assets in the economy. High power money, or the monetary base, consists of currency in circulation and reserves held by central banks.
Concepts of M1, M2, and M3
M1 represents the most liquid forms of money, including cash and demand deposits. M2 encompasses M1 plus savings accounts and other near money assets that are slightly less liquid. M3 includes M2 plus larger liquid assets, catering to the broadest definition of the money supply.
Inflation and Deflation
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Causes of inflation can include demand-pull factors, cost-push factors, and built-in inflation. Deflation is the decrease in the general price level, often linked to reduced demand and can lead to recession. Both inflation and deflation impact economic stability and growth.
Price Indexes - CPI and WPI
The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The Wholesale Price Index (WPI) measures the average change in selling prices received by domestic producers for their output, serving as a leading indicator of inflation.
Role of Fiscal Policy in Controlling Money Supply
Fiscal policy, through government spending and taxation, can influence the money supply. By adjusting tax rates and government expenditures, the government can impact aggregate demand, affecting inflation and deflation. Coordinating fiscal policy with monetary policy is essential for overall economic stability.
