Development Economics

1. Introduction to Development Economics

Development Economics is a branch of economics that focuses on improving fiscal, economic, and social conditions in developing countries. It considers factors such as health, education, working conditions, domestic and international policies, and market conditions with a focus on improving conditions in the world's poorest countries. Development economics studies the transformation of emerging nations into more prosperous nations.

Strategies for transforming a developing economy tend to be unique because the social and political backgrounds of countries can vary dramatically. Some aspects of development economics include determining to what extent rapid population growth helps or hinders development, the structural transformation of economies, and the role of education and health care in development. They also include international trade and globalization, sustainable development, the effect of epidemics such as HIV and AIDS, and the impact of catastrophes on economic and human development.

2. Main Indicators of Developmental Economics

Poverty
Unemployment
Social Infrastructure

3. Poverty

3.1. Concept of Poverty

Poverty is a social phenomenon wherein a section of society is unable to fulfill even its basic necessities of life. The UN Human Rights Council has defined poverty as "A human condition characterized by the sustained or chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic, political and social rights."

The poor are those who live Below the Poverty Line (BPL). The poverty line is defined in terms of per capita household expenditure. Poverty manifests itself in the form of both absolute poverty as well as relative poverty.

3.2. Types of Poverty

Absolute Poverty: Refers to a condition where people lack the basic necessities of life, such as food, safe drinking water, proper housing, and sanitation. It's often measured against a poverty line (e.g., $1.90/day by World Bank).
Relative Poverty: Refers to a condition where people lack the minimum amount of income or resources needed to maintain the average standard of living in the society in which they live. It is measured in relation to others in the same society.
Chronic Poverty: Long-term poverty, inherited across generations.
Transient Poverty: Short-term poverty, where individuals/households move in and out of poverty due to temporary shocks (e.g., illness, job loss).

3.3. Causes of Poverty

The extent of poverty in an economy is due to a wide range of factors as follows:

Underdeveloped nature of economy: Limited economic opportunities, low productivity.
Rapid growth of population in an overpopulated country: Even if the national income increases, the per capita income remains the same due to increase in population, leading to low living standards.
Large inequalities in the ownership of earning assets such as land, buildings, industry etc., leading to skewed distribution of wealth.
Low level of productivity in agriculture and industry, resulting in low income generation.
Large scale unemployment and under-employment.
Inequality of opportunity in acquiring education and skills, perpetuating inter-generational poverty.
State Policies: Ineffective or poorly implemented government policies that fail to address poverty.
Regional disparities: Uneven development leading to pockets of poverty in certain regions.
Inflation: High inflation erodes the purchasing power of the poor.
Lack of Access to Credit: Limited access to formal credit for small businesses or for consumption smoothing during shocks.
Climate Change and Disasters: Increased frequency and intensity of natural disasters disproportionately affect the poor, leading to loss of livelihoods and assets.

3.4. Poverty Estimation in India (Value-added)

Pre-Independence: Dadabhai Naoroji (Jail Cost of Living), National Planning Committee (1938).
Post-Independence:
- Working Group (1962): Recommended a poverty line of Rs. 20 per month per person.
- Dandekar and Rath (1971): First systematic assessment, based on calorie intake (2250 calories per person per day).
- Alagh Committee (1979): Task Force on Projections of Minimum Needs and Effective Consumption Demand, defined poverty line based on nutritional requirements.
- Lakdawala Committee (1993): Accepted state-specific poverty lines and used CPI-IW for urban and CPI-AL for rural.
- Tendulkar Committee (2009): Shifted from calorie-based to consumption expenditure based on a wider set of goods and services (education, health). Used Mixed Recall Period (MRP).
- Rangarajan Committee (2014): Reverted to using separate poverty lines for rural and urban areas, using different calorie and protein norms, and recommended a higher poverty line than Tendulkar.
Multidimensional Poverty Index (MPI): Developed by UNDP and OPHI, measures poverty based on three dimensions (health, education, living standards) and 10 indicators. NITI Aayog developed the National MPI for India.

3.5. Government Initiatives for Poverty Alleviation (Value-added)

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Provides 100 days of wage employment to rural households.
Pradhan Mantri Jan Dhan Yojana (PMJDY): Financial inclusion scheme.
Pradhan Mantri Awaas Yojana (PMAY - Rural & Urban): Affordable housing.
National Food Security Act (NFSA): Provides subsidized food grains.
Pradhan Mantri Kisan Samman Nidhi (PM-KISAN): Income support for farmers.
Deendayal Antyodaya Yojana - National Rural Livelihoods Mission (DAY-NRLM): Self-employment and skill development.
Atal Pension Yojana (APY): Social security for unorganized sector.

4. Unemployment

4.1. Concept of Unemployment

Unemployment occurs when people who are actively searching for employment are unable to find work. It is often used as a measure of the health of the economy.

4.2. Types of Unemployment (Value-added)

Cyclical Unemployment: Arises due to fluctuations in the business cycle (recessions, depressions).
Seasonal Unemployment: Occurs in industries with seasonal demand for labor (e.g., agriculture, tourism).
Structural Unemployment: Mismatch between the skills of the unemployed and the skills required for available jobs, often due to technological changes or shifts in industry structure.
Frictional Unemployment: Short-term unemployment that arises from the process of matching workers with jobs (e.g., people in between jobs, fresh graduates seeking first job).
Disguised (Hidden) Unemployment: Occurs when more people are employed in a job than are actually required, such that the marginal productivity of the extra workers is zero or negligible (common in agriculture).
Educated Unemployment: Occurs when educated individuals are unable to find suitable jobs.
Technological Unemployment: Due to automation and technological advancements replacing human labor.

4.3. Causes of Unemployment (Value-added)

Slow economic growth insufficient to absorb new entrants into the labor force.
Large increase in the labor force due to population growth.
Inadequate investment in human capital and skill development.
Dominance of seasonal agriculture.
Rapid rural-urban migration without sufficient urban job creation.
Rigid labor laws.
Lack of entrepreneurship and small enterprise development.

4.4. Government Initiatives for Employment Generation (Value-added)

Skill India Mission: Focuses on skill development and vocational training.
Make in India: Aims to boost domestic manufacturing and create jobs.
Startup India & Stand-up India: Promotes entrepreneurship and self-employment.
Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Flagship skill training scheme.
Mudra Yojana: Provides small loans to non-corporate, non-farm small/micro enterprises.

5. Social Infrastructure

5.1. Concept of Social Infrastructure

Social infrastructure refers to the basic facilities and services that support the living standards and quality of life of a population. It is crucial for human capital formation and overall societal well-being, which in turn drives economic development.

5.2. Key Components of Social Infrastructure (Value-added)

Education: Schools, colleges, universities, vocational training centers. It fosters human capital, innovation, and productivity.
Healthcare: Hospitals, clinics, primary health centers, sanitation facilities, access to clean drinking water. Essential for a healthy and productive workforce.
Housing: Adequate and affordable housing for all sections of society.
Sanitation: Waste management systems, public toilets, wastewater treatment. Directly impacts public health.
Drinking Water: Access to safe and potable water is fundamental for health.
Social Security: Pension schemes, insurance, unemployment benefits.

5.3. Importance for Development (Value-added)

Human Capital Formation: Education and health investments lead to a more skilled, knowledgeable, and healthy workforce.
Increased Productivity: Healthy and educated individuals are more productive, contributing to economic growth.
Poverty Reduction: Improved social infrastructure provides opportunities for skill development and better health, helping people escape poverty.
Improved Quality of Life: Enhances overall well-being and life expectancy of the population.
Social Equity: Equitable access to social infrastructure reduces inequalities.

5.4. Government Initiatives in Social Infrastructure (Value-added)

National Health Mission (NHM): Aims to provide accessible, affordable, and quality health care.
Ayushman Bharat: Pradhan Mantri Jan Arogya Yojana (PMJAY) and Health and Wellness Centres.
Sarva Shiksha Abhiyan (SSA) & Rashtriya Madhyamik Shiksha Abhiyan (RMSA): Universalization of elementary and secondary education (now Samagra Shiksha Abhiyan).
Swachh Bharat Abhiyan: Focuses on sanitation and cleanliness.
Jal Jeevan Mission: Aims to provide tap water connection to every rural household.

6. Other Aspects of Development Economics (Value-added)

International Trade and Globalization: How trade policies, foreign investment, and global economic integration impact developing countries.
Sustainable Development: Balancing economic growth with environmental protection and social equity for future generations. Key concept includes Sustainable Development Goals (SDGs).
Impact of Epidemics and Catastrophes: Analyzing the economic and human costs of health crises (e.g., HIV/AIDS, COVID-19) and natural disasters on development paths.
Role of Institutions: Importance of strong and transparent institutions (governance, legal frameworks) for fostering development.