Concept of Development Meaning and Indicators - PowerPoint Presentation

1. Concept of Development

2. Meaning and IndicatorsIn understanding development, the first thing is to be clear about what it implies. Connected with it is an equally important aspect of how to represent development.Improving Levels of LivingAll countries strive after an all round improvement of the quality of life of their people. It requires progress in the economic sphere (like income, employment, skills etc.) as also in the non-economic sphere (like social, political, cultural affairs). In economics one is concerned with economic progress or development.

3. DefinitionIn the context of the underdeveloped countries like India, development is defined as a sustained increase in the real per capita income together with an improvement in the distribution of material welfare. This definition involves advancement on two aspects of economic life, namely income and distribution. As for income, the focus is on the rise in the per capita income. This requires a growth rate (or rise in national income) which is higher than the rate of increase in population.Since the population-growth is quite high in the range of two to three per cent, and the income-levels very low in these countries, the growth rate of national income has to be sufficiently large to make any significant impact on the dismal income-situation. It is also necessary that the rise in the per capita income should continue over a long period spread over several decades. Further, the rise in the per capita income has to be in real terms. This requires that the rise in the money income should be higher than the rise in the price-level. It is only then that, on an average, more goods and services will become available.

4. As for distribution, the improvement in it is essential to raise the economic status of the poor. The growth of national income, as has been amply proved by the experience of several developing countries, does not automatically trickle down to the people at the bottom rung of the income ladder.The empirical data has shown that while the national per capita increased in these countries, the per capita income of the poor did not rise. It, in fact, fell in some countries so that the rich became richer and the poor poorer. The reason is obvious. Because of the gross inequalities of assets, both physical (like land, tools, equipment etc.) as also human (like health, education, skills etc.) the poor do not have necessary wherewithal to participate and benefit from growth. It is therefore, necessary that the government undertakes policies that redistribute the productive assets (through, for example, land reforms, supply of tools etc.) in favour of the poor as also change the pattern of its public expenditure to provide free or low priced facilities of health, eduction, training etc. to the poor.

5. It is thus clear that development, as defined above, rightly incorporates both growth and distribution in its ambit. All this will raise the living levels of all the people. Sustainable Development In the context of the definition of development, it may be useful to refer to the concept of sustainable development which is now in common use. The term was brought into vogue by the World Commission on Environment and Development in 1987 in its report titled “Our Common Future”; According to it the term means “meeting the needs of the present generation without compromising the needs of future generations.”In other words, it envisages a “development that meets the needs of the present without compromising the ability of the future generations to meet their own needs”. The ability to meet the need is largely determined by the accumulation of human capital (through education and technological advance) or/and man-made physical capital (machines, tools etc.). The accumulation of capital will, however, inevitably involve some depletion/change of natural resources (land clearing, oil drilling, river damming, mining etc.).Hence, what matters is that “the overall productivity of the accumulated capital – including its impact on human health and aesthetic pleasure, as well as incomes – more than compensates for any loss from depletion of natural capital.”

6. Indicators of DevelopmentIncome IndexAfter having taken up the meaning of development, we now discuss the question of how to indicate development. Several indices have been used to indicate development. The indicator most often used is the one related to income. MeaningThere are two sets of income figures that are used to represent growth. One refers to the increase in the total real national income of a country. In terms of this index, an economy is said to be growing when its national income increases for a long period of time. In case the economy’s national income remains stable, it is an indication of a static, stagnating economy or non-growth. A declining trend in national income represents declining state of the economy or a negative growth. Second and the most widely used index of development is a rise in the real per capita income over a long period of time. Since goods and services are very inadequate in the poor countries, increases in the national income is obviously of paramount importance. But from the welfare point of view, availability of goods and services per head is significant. It is more so as the population in these countries is rising at a fast rate. Thus, a rise in national income, no doubt, by itself does show growth. But its welfare significance can be properly measured by the index of per capita income.

7. Criticism of income-approach.The dissatisfaction with this approach has been caused both by the conceptual weaknesses of the income index as also by the dismal experience of development of the poor countries since the fiftes.First, as the conceptual shortcomings are concerned, one may mention two principal ones. One is that national income indicator makes no distinction between unproductive and dysfunctional growth and productive and socially useful growth. For example, increase in military expenditure and increase in drug abuse (involving large expenditure on drugs etc.) gets counted as additions to the national income. Two, the index ignores welfare considerations on several counts. Take an example, an improvement in people’s health through preventive measures, reduction on medical bills through less expenditure on production of drugs, less medical tests, less doctor’s fees etc. But this lessening of expenditure shows up as reduction in national income.

8. Secondly, the assumption of this approach that the vast poor masses of these countries will also benefit from the rise in national income has been belied by the actual experience of these countries in many decades, since the fifties of the 20th century. Non-income IndicesLargely as a reaction to the inadequacy of income-index as the only criterion of development, emphasis shifted to non-income indices of development. Physical Quality of Life IndexHuman Development Index

9. Physical Quality of Life IndexAmong them one criterion emphasis the physical quality of life that results from a certain use of national income, rather than the quantity of national income. This is known as Physical Quality of Life Index, PQLI for short. The index incorporates three components: life expectancy, infant mortality and literacy.This approach measures what the individuals need and desire initially and at the most basic level. They wish to enjoy longer life, lead a life of reduced illness, and be prepared for greater opportunities in this world.A higher index shows that large many people have benefited in terms of the three component, that is the life expectancy has gone up, infant mortality reduced and literacy expanded. Such an improvement can take place even with no/little rise in national income. It is so because with a change in the use-pattern of national income, a country can favourably influence these three elements of the objective. However, it must be conceded that in the poor countries only little can be achieved in these spheres without sustainable growth in national income. Without such a growth, necessary facilities cannot be expanded much and for many, such as for better and nourishing food, for medical and educational needs, etc. which have bearing on the physical quality of life.

10. Basic needs approachA recent and a further breakaway from the objective of a mere rise in per capita income is the approach that gives priority to the meeting of the basic needs of the vast population of the poor countries. This line of thinking considers even the PQLI as inadequate and less helpful in meeting the many evils of poverty. This approach, also being emphasised by such world bodies as ILO (International Labour Organization) and UNESCO (United Nations Educational, Scientific and Cultural Organization), involves provision for the minimum levels of material needs such as: Consumption of food, provision of clothing and shelter, and access to such essential public services as pure drinking water, sanitation, public transport, health and education. The objective of development, therefore, is meeting the needs of the vast masses. Consequently the index of progress has to be in terms of production of these goods and services.

11. This approach includes not only the objective of increasing the rate of growth of income, but more importantly a pattern of development that encompasses objectives like the following:A composition of national product tilted in favour of necessities of life;A production that is labour-intensive in the sphere of consumer goods using local resources and turning out goods demanded by the masses etc;A set of measures that is directed to the eradication of poverty;A public expenditure that offers services to the weaker sections of population etc.In brief, the approach of “Basic Needs” is meant to achieve the objectives of removing poverty, unemployment and inequalities that have marred the growth of many countries in the recent past.

12. Human Development Index (HDI)Another and the most recent index of development, in use since 1990, is the Human Development Index, HDI, for short. It has been prepared by the United Nations (under UN Development Programme).Meaning. It is a composite of three indicators:Longevity (or life expectancy at birth);Educational attainment; andStandard of living (or per capita income).The first two indicators are the social indicators. Life expectancy, a much desired objective of human beings, reflects the progress made in such fields as health, infant and child mortality and nutrition.The educational attainment is comprised of adult literacy, and a combined primary, secondary and tertiary enrolment ratio.

13. The per capita income, an economic indicator, is used as proxy measure for satisfaction derived from a bundle of basic goods and services. It is also assumed to reflect employment levels of people. The HDI, unlike other indices which measure absolute levels, ranks countries in relation to each other. For this the current minimum value and the maximum desirable value in respect of each of each of the three elements of the index are taken note of. For example, for life expectancy the current minimum value is 25 years, and the maximum desirable value is 85 years. In the case of the educational attainment the minimum and the maximum values are 0 per cent and 100 per cent. The index then takes the distance travelled (or progress made) from the minimum towards the maximum. This is expressed in percentage.The same exercise is repeated in respect of the third component of the index. The distance travelled in each case has been used as the basis for combining the three indices. This gives a common denominator to rank countries on a uniform scale.

14. Another novel feature of HDI is the weight assigned to income which tapers off sharply beyond the threshold income regarded as sufficient for human survival. This means that as income goes beyond the cut-off point, it becomes increasingly less important, on the valid assumption that the rise in income beyond a certain point is subject to diminishing returns. As a consequence, the other two indicators become more influential in determining the index. SignificanceThe index is useful and meaningful, specially for the less-developed countries. It is much better than the two non-income indices described above. Unlike them, it includes income which is the single most important factor in determining the well-being of the poor in the less developed countries. While it gives importance to income, it does not do so unduly. The decline in its weightage after a certain point, automatically raises the importance of social indictors. This incorporates the present concern of many nations with human development rather than with mere economic growth.

15. Equally importantly, the inclusion of social indicators, the HDI stresses the importance of the quality of life. This brings in the public/government expenditure which, with some restructuring can be helpful in providing more resources for health and education.The index, by highlighting the distance yet to be covered by the less-developed countries brings into limelight, factually and sharply, the wide disparities that exist in the levels of human development between them and the developed countries.The index is of special importance as it has the quality of a dynamic index. With changes in the data in respect of its three components including changes in the minimum and the maximum values, the HDI will also change and thereby indicate/measure progress along the right lines. Thus it becomes a measure of movement towards desired objectives.