# GSEB Class 12 Economics Notes Chapter 2 Indicators of Growth and Development

This GSEB Class 12 Economics Notes Chapter 2 Indicators of Growth and Development covers all the important topics and concepts as mentioned in the chapter.

## Indicators of Growth and Developments Class 12 GSEB Notes

Meaning of Economic Growth:

• • Economic growth relates to the long run increase in the total output of an economy.
• • In economic growth there is a continuous increase in the real national income and the real per capita income and this is possible due to increase in the supply of factors of production and increase in their quality.
• Thus economic growth is a quantitative change. It shows the increase in output and gross national output.

1. Definitions of Economic Growth :

• Economic growth refers to growth rate of national income or rise in total quantum of goods and services. – Prof. Hansen
• A long-term increase in capacity of a country to supply diverse economic goods to its people is known as economic growth. – Simon Kuznets

2. Limitations of Economic Growth :

• It considers only the quantitative change.
• In economic growth there is a rise in national income and per capita income but institutional and psychological factors remains unchanged.
• Its concept is narrow and depicts only the rise in the rate and extent of output.
• It is not useful to know the welfare of the people.

Meaning of Economic Development:

• Economic development is a continuous process to achieve economic well-being.
• It is a multi-dimensional process in which not only quantitative changes occur but also qualitative changes occur.
• During the process of Economic development, the economic and social structure of the economy changes. An increase in the real national income and real per capita income results in structural change that decreases the inequality of income, poverty and unemployment. Thus with economic progress social progress is there in economic development.
• The term economic development has a very wide meaning which includes economic growth, economic welfare and economic progress.

1. Definitions of Economic Development:

• Economic Development is a multi¬dimensional process. – Michael Todaro
• Economic development is such a process in which there is no increase in the population living below the poverty line, the distribution of income does not further increase the inequalities and there is a continuous rise in the real per capita income of the country for a long period of time.
-G. M. Meier
• Economic development is a process which increases the factors of production , and create changes in the technique of production due to which per capita income continuously increases and the standard of living continuously rises irrespective of whether population remains constant or increases. – Machlup

2. Characteristics of Economic Development:

• It is a continuous process
• Quantitative and qualitative change takes place
• Change in demand
• Labour become more dynamic
• Capital formation increases
• Change in technology and
• After a particular stage, development becomes self-motivating.

3. Limitations of Economic Development:

• It cannot discuss the human development.
• It cannot be measured.
• It cannot be said that economic development means improvement in standard of living.

Difference between Growth and Development:

• Economic Development (ED) is a process while Economic Growth (EG) is an occurrence.
• ED is quantitative and qualitative change while EG is only quantitative change.
• In ED emphasis is on the unutilised resources while in EG emphasis is on the distribution of available resources.
• ED is related to developing countries while EG is related to developed countries.
• ED is difficult to measure while. EG is easy to measure.
• Concept of ED is broad while concept of EG is narrow.
• ED is related to distribution of per capita income while EG is only related to increase in per capita income.
• ED is a slow process while EG is a rapid process.
• ED is not possible without EG while EG is possible without ED.

Indicators of Development:
1. Growth Rate of National Income :

• If the rate of rise in national income is high the development rate is said to be high and if the rate of rise in national income is low the rate of development is said to be low.
• If the rate of national income does not rise, the development is called stagnant.
• If the rate of national income decreases, the development is said to be negative.
• For this indicator, national income is calculated not at current prices but at
• constant prices.

Limitations of National Income:

• It is difficult to calculate true national income.
• The rate of ED cannot be understood only by just knowing the national income and hence the extent of the population should also be known.
• There are different methods used to calculate national income across the world.

2. Growth Rate of Per Capita Income:

• Per Capita Income = $$\frac{\text { Total national income }}{\text { Total population }}$$
• This indicator takes into account the population of the country too, hence, it is superior to the national income as an indicator.
• If the country’s per capita income rises at a faster rate, development is said to be fast and if per capita income rises at a slow rate, development is slow.
• If per capita income does not rise, the development is stagnant.
• If per capita income falls development is negative.
• Rise in per capita income improves physical welfare of an individual and hence it is the real indicator of ED.

Limitations of Per Capita Income:

• In India population census is held once in 10 years, hence the figures of per capita income are only estimates.
• It is difficult to calculate per capita income.
• Per capita income shows only an average.
• As real’ exchange rate cannot be known the real comparison is not possible amongst countries.
• Per capita income of the country is not actual income that a citizen gets, hence it is not a correct indicator of ED. „

3. Physical Quality of Life – PQL :

• The objective of ED is to improve the standard of living of the people. So, Physical Quality of Life is accepted as an indicator of ED.
• Consumption or living standards is identified as physical quality of life.
• If the living standard of the people goes up, it can be said that physical quality of life has gone up.
• To determine the physical quality of life, the following determinants are included :
• Food
• Health and Medical services
• Housing and clothing;
• Education and entertainment;
• Transport, communication and information services
• Energy
• Drinking water
• Average life expectancy
• Infant mortality rate and
• Drainage facility.
• If there is improvement in the above determinants it can be said that there is improvement in the physical quality of human life.
• Developed countries give more importance for the improvement of the physical quality of life.

Physical Quality Life Index – PQLI:

• Davis Morris presented the Physical Quality Life Index.
• In PQLI betterment of physical quality life of human beings is considered as Economic development.
• The level of PQLI determines the level of Economic development. Higher is PQLI, more is the development of a country.
• The three standard to measure the PQLI are :
• Extent of Education
• Life expectancy and
• Infant Mortality Rate – IMR.
• Thus, PQLI = Extent of education + life expectancy + Infant mortality rate.
• Increase in the extent of education shows the rise in the welfare of an individual. Hence, it is the important standard of physical quality life.
• Rise in life expectancy is the reflection of rise in the medical services of the country.
• The fall in infant mortality rate, shows health care services of the country is good.

PQLI is formed as follows ;

• PQLI is always between 0 and 100.
• PQLI can be used to compare two states within the country or two different countries.
• Higher the PQLI, more is the Economic development and lower the PQLI. lesser is the Economic development.
• PQLI closer to 100, better is the performance of all three standards and PQLI closer to zero, bad is the performance of all three standards.
• Thus, PQLI is the indicator of economic development superior to the per capita income.

Limitations of P9LI:

• It is not proper to include on three aspects in calculating PQLI. It is necessary to include other factors also to the existing ones.
• PQLI is an average. So, decisions cannot be made on the basis of averages.
• It is not right to give equal weightage to all standards of PQLI.
• Growth of income has been ignored in PQLI.

4. Human Development Index – HDI:

• HDI is the most recent indicator of Economic development.
• HDI is prepared by considering economic and social aspects.
• United Nations Development Programme presented Human Development Report in 1990 and HDI was presented as a measurement of development.
• Indian economists contributed in evolving HDI.
• Improvements were introduced in the minimum and maximum values of HDI in the year 2010.
• The determinants of HDI are :
• Life expectancy,
• Education and
• Standard of living.
• The value of HDI ranges from 0 to 1.
• The maximum value of HDI is 1.
• HDI closer to 1, the country is considered more developed.
• HDI farther from 1, i.e., closer to 0, the country is considered less developed.
• In 2014, Norway ranked 1 with HDI 0.944 while India ranked 130 with HDI 0.609 out of 188 countries.
• According to HDI report of 2015, out of 188 countries, 49 countries with average HDI 0.890 are having maximum human development, 56 countries with average HDI 0.735 are having high human development, 38 countries with average HDI 0.614 are having moderate human development while 45 countries with average HDI 0.493 are having low human development.

Importance of HDI:

• HDI is a complete indicator of Economic development.
• Its ultimate objective is only human welfare.
• A rise in the HDI ranking indicates that health and education have improved in the country.
• HDI is a progressive concept. True progress = Economic progress + Social progress
• HDI gives guideline for developing . countries to find the scope for development.

Limitations of HDI:

• Only three social indicators are included in HDI, which is not sufficient. Other social indicators should have been included.
• All three indicators are given equal weightage. In reality they have different importance in different situations.
• It only shows the relative progress.

Other indicators of Economic Development:

• Gender Development Index – GDI
• Technological Achievement Index – TAI
• Human Poverty Index – HPI
• Human Consumer Index – HCI