Economic Environment Of Business_2

Economic Growth

• Economic Growth is the process of sustained increase in real national and per capita income over a long period of time.
• Increase in real national income can be sustained only when this increase is the outcome of some permanent and durable increase in productive capacity of the economy through increasing investment in the various sectors – agriculture, industry, infrastructure etc.

Economic Development

• Economic Development is a broader concept than Economic Growth.
• ‘Economic Growth merely refers to a rise in output, Economic Development implies changes in technological and institutional organisation of production as well as distributive pattern of income’ – C. P. Kindleberger
• The process of development is far more extensive.
• Apart from the rise in output, it involves changes in the composition of output as well as a shift in the allocation of productive resources to ensure social justice.

3 Questions – Dudley Seers

•What has been happening to poverty?
•What has been happening to unemployment?
•What has been happening to inequality?

....................................1999...........2000..............2001..................2002...................2003
GNI per capita (current US$)__440_____450______460________470_________540
GDP growth (annual %)______7________4________5__________4___________9
Exports of goods and services (% of GDP)12__14________13_________14__________15
Imports of goods and services (% of GDP)14__15________14_________16__________16
Foreign direct investment, net inflows (BoP, current US$ ‘000,000)2,168.6_2,496.04_3,767.91_3,700.3_4,269
Inflation, GDP deflator (annual %)___4___4_________4_________3___________3
Life expectancy at birth, total (years)_….__….________….________63__________63
Poverty headcount (% of population)_…___29________.._________…__________…
School enrollment, primary (% net)_84___84________83________….__________…


The challenges of development

• Better education
• Higher standards of health and nutrition
• Less poverty
• A clearer environment
• More equality of opportunity
• Greater individual freedom
• A richer cultural life
- World Development Report, 1991


Human Development Index

•Longevity measured by life expectancy at birth
•Educational attainment measured by adult literacy rate and gross enrolment ratio- GER
•Standard of living measured by real per capita GDP adjusted for PPP


Classification of countries

..........................................................................................................HDI Values
High Human Development_____________________0.800 & above
Medium Human Development__________________0.500 – 0.799
Low Human Development_____________________Below 0.500


India – Human Development Index

Year...................................India’s HDI
1991...................................0.439
2001..................................0.590
2002..................................0.595

2002 : India’s rank is 127 out of 177 countries


Salient Features of Indian Economy

1. Low standard of living
• Low incomes / poverty
• Limited or low level of education
• Inadequate housing
• Poor health
• High income mortality
• Low life expectancy

Per Capita Incomes of Various Groups of Countries
...................................................................................Per Capita GNP (2000) $
World______________________________7350
Low Income Countries__________________520
Middle Income Countries________________2950
High Income Countries_________________25510
India______________________________2390

Vicious Circle of Poverty

POVERTY ==> ILLITERACY ==> UNEMPLOYMENT ==> LOW PRODUCTIVITY ==> POVERTY

2. Low Productivity
• Low level of technology
• Low quality of Human Resources

3. High Rate of Population Growth
• Low mortality rates
• High birth rates

4. High Levels of Unemployment
• Underemployment
• Disguised unemployment

5. Substantial dependence on Agricultural sector
• Contribution to GDP – 25%
• Employment – 65%

6. Dependence and Vulnerability in International Relations
• High inequalities
• Political instability
• Dependence on developed nations for
- Foreign aid
- Foreign capital
- Technology