Economic Growth & Development

Economic Growth and Development is a foundational topic in the JAIIB Indian Economy module. It covers the distinction between growth and development, the history of economic planning in India, structural transformation of the economy, the role of institutions like NITI Aayog, and ongoing challenges. Banking professionals must understand these concepts as they underpin credit policy, financial inclusion goals, and national economic strategy.

Understanding the distinction between these two concepts is fundamental:

Economic development is defined as a persistent increase in the material well-being of society. It comprises social, cultural, political, and economic developments that contribute to material advancement, in addition to national income growth. Qualitative indicators include:

• Human Development Index (HDI)
• Human Poverty Index (HPI)
• Gender Development Index (GDI)
• Physical Quality of Life Index (PQLI)
• Infant mortality, literacy rate

Economic growth includes increases in income, savings, and investment, as well as progressive changes in the country's socioeconomic structure, including both institutional and technical developments.

• India was an agricultural economy with very low per capita income
• 1867-68: Dadabhai Naoroji published the first estimates of national income in his book "Poverty and Un-British Rule in India"
  • British India's national income: Rs. 340 crore
  • Per capita income: Rs. 20 per annum at current prices
• Other economists who estimated national income: William Digby, Findlay Shirras, V.K.R.V. Rao, R.C. Desai
• Atkinson estimated per capita income at Rs. 172; Horne at Rs. 158 (1948-49 prices)
• India's share of global income: 23% in 1600 AD, shrank to only 3% by 1947
• India's share of global trade: 33% in 1600, fell to less than 3% in 1947
• Per capita income in 1948-49: Rs. 142 per annum; by 1947 it had risen to Rs. 250

• By the 1930s, there was political agreement that independent India would be a planned economy
• By early 1950s, India had begun economic planning
• Planning Commission was in charge since 1950; chaired by the Prime Minister, headed by a Deputy Chairman
• Plans approved by the National Development Council (NDC)
• In 2015, NITI Aayog replaced the Planning Commission

1. Economic Growth — sustained increases in output
2. Poverty Alleviation — through government programmes
3. Employment Generation — reducing unemployment
4. Social Justice and Reducing Inequality — interpersonal and inter-regional
5. Self-Reliance — independent economy, not isolation
6. Modernisation — agriculture, industry with modern practices

A rolling plan evaluates effectiveness annually and creates a new plan the following year, updating both allocations and targets.

Established in 2015 to replace the Planning Commission, recognising that the economy had shifted to a market-dominated system and state rights needed prioritisation.

• Develop a shared vision of national development with active state participation
• Promote cooperative federalism through organised support programmes
• Create procedures for developing plans at the village level and aggregating them upward
• Ensure national security considerations are included in economic strategy
• Give special attention to segments at risk of not benefiting from economic advancement
• Provide guidance and foster collaboration between stakeholders, think tanks, and research organisations
• Maintain a Resource Centre for good governance and best practices

Two key inconsistencies led to the change:

1. Between the planning framework and the market's role — the framework did not adjust after the 1991 reforms
2. Between centralised authority and states' developmental role — the rise of coalition governments and regional parties required a more decentralised approach

• Adverse balance of payments
• Poor performance of the public sector
• Drop in foreign exchange reserves
• Large government debts
• Inflationary pressure
• Stringent conditions by the World Bank and IMF
• Fiscal deficit: Early 1980s = 5.1% of GDP → 1990-91 = 8.4% of GDP
• Domestic debt: Early 1980s = 33% of GDP → 1990-91 = over 50% of GDP

The three pillars of transformation — Liberalisation, Privatisation, Globalisation:

• Liberalisation: Relaxation of trade regulations, enhanced production capacity, abolition of industrial licensing, liberty to import goods
• Privatisation: Expanding the role of the private sector
• Globalisation: Opening economic frontiers for international investors

The reforms aimed to achieve high economic growth, lower inflation, minimise the current account deficit, and address the balance of payments issue.

By 1980-81, the services sector (38%) surpassed agriculture (36.1%) to become the largest contributor to India's GDP.

1. Capital Accumulation — Investment in physical and human capital
2. Human Capital Development — Education, healthcare, skill development
3. Technological Advancement — R&D, innovation, new technology adoption
4. Stable and Effective Institutions — Good governance, rule of law, property rights
5. Efficient Infrastructure — Transport, energy, water, digital connectivity

1. Economic growth = quantitative (GDP, GNP); Economic development = qualitative + quantitative (HDI, PQLI)
2. Dadabhai Naoroji's first national income estimate (1867-68): Rs. 340 crore, per capita Rs. 20/year
3. India's share of global income: 23% (1600) → 3% (1947)
4. Services surpassed agriculture as largest GDP contributor by 1980-81
5. LPG reforms (1991): Triggered by BoP crisis, fiscal deficit of 8.4% of GDP, forex reserves covering only 3 weeks of imports
6. Planning Commission (1950-2015) replaced by NITI Aayog (2015)
7. NITI Aayog promotes cooperative federalism and functions as a think tank
8. 6th Plan (1980-85) established NABARD; 7th Plan (1985-90) focused on industrial productivity
9. RBI established IDBI (1964), NABARD (1982), EXIM Bank (1982), NHB (1988), SIDBI (1990)
10. Four phases of financial system: Pre-Independence → Post-Independence → Post-Liberalisation → Post-GFC
11. Bank of Calcutta (1806) was precursor to SBI; BSE (1875) = Asia's first stock exchange
12. Hilton Young Commission (1935) recommended creation of RBI