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Growth, Development and Inclusive Growth


GrowthVery often Growth and Development are used interchangeably like synonyms. Till 1960’s there was no difference between the two terms. However, off late it is realized that economic development is a boarder term than economic growth. In 21st century the novel terms like “inclusive growth” and “sustainable development” are also coined, thus it is necessary to know the technical differences between these terms and differentiate them from each other.

Economic Growth

It’s a quantitative term. It reflects the increase or decrease in the value of goods and services produced in comparison to a reference period. For example an annual growth of 3% of a country means that the value of goods and services produced   in the country this year is 3% more vis-à-vis that of last year. Economic growth can be measured in following two ways:

  •  An increase/decrease in real GDP occurring over a period of time.
  • An increase/decrease in real GDP per capita occurring over time.

The concept of "Growth" suffers from the following limitations:

  • It gives only an aggregate picture of increase and decrease in production of goods and services.
  • Most importantly it’s silent on the distribution pattern of the income arising from the production of the goods and services especially to the disadvantageous and marginalized section of the society.

Economic Development

Development is a qualitative term. In normal parlance this term just not takes into account, the increase in the goods and services produced over a period of time but also account for their mode of production and for their equitable distribution in the society.  Thus whereas economic growth merely refers to a rise in output, economic development implies changes in technological and institutional organization of production as well as distributive pattern of income.

Traditionally it was believed that the benefits from the rapid growth in overall and per capita GNP would gradually “trickle down” to all the strata of the society. This would result in equitable distribution of the economic and social benefits of growth resulting in up gradation respective living standards of all the sections in the society. Therefore the focus was on “rapid growth” and the concepts of growth and development were used interchangeably.

During 1950s and 1960s many of the Third World Nations did realize the respective economic growth targets. However the living standards of bulk of population in these countries, especially that of the disadvantageous sections, did not change. As a result the “trickle down” theory was discarded, and following conclusions were drawn:

  1. Growth is necessary but not sufficient condition for development.
  2. Markets inherently are not people friendly, thus regulations are required to make them people friendly and development oriented.
  3. Government interventions are essential for equitable distribution of income.

Inclusive Growth

The concept of economic development talks about increase in the income levels of the masses in general and excluded groups in particular. However, for eradication of poverty, income inequalities and unemployment in the long run it is necessary that the interventions for augmentation of income level are sustainable in the long run.

The inclusive growth approach takes a longer term perspective as the focus is on the productive employment rather than on direct income redistribution, as a means of increasing incomes for excluded groups. In the short run, governments could use income distribution schemes to increase the income level of poor, but transfer schemes cannot be an answer in the long run and can be problematic also in the short run.

Inclusive growth focuses on the following parameters:

  • It focuses on both the pace and pattern of growth. The way growth is generated is critical for accelerating poverty reduction.
  • It focuses on productive employment rather than income redistribution. Hence the focus is not only on employment growth but also on productivity growth.

Sustainable Development

Sustainable development incorporates the dimension of ecology and environment protection. The strongest argument for protecting the environment is the ethical need to guarantee the future generations opportunities similar to the ones availed by the previous generations. It talks about intergenerational and intra generational equities.

Sustainable Development envisions increasing the economic growth and translating it into improvements in human lives, without destroying the ecology to protect the opportunities of future generations.

The following table distinguishes the four terms

 

S.No.

 

Term

 

Focus Area

 

Key Features

1

Growth

 

Profits

Focus on rapid increase of outputs.

2

Development

Profits and People

Not just outputs but also the distribution of these outputs to people

3

Inclusive Growth

Profits and People

Not just output and distribution of outputs, but also the pattern of distribution and income of people.

4

Sustainable Development

Profits, People and

Planet (Environment)

Takes into account the environment protection as well.

 

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