Economies grow and develop, they
expand and advance, and they progress
and prosper. There are phases when they
decline too, and there are economies that
experience continuous decay. If one
considers long stretches of human
history, one knows that economies
(civilizations) disappeared altogether. We
will not take into account such long
stretches of time. We shall not consider
too distant a past either. We will leave
them to historians, may be, economic
historians.
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Let us take a normal view. We shall
then accept decline as an occasional,
temporary phenomenon. We shall,
therefore, use positive terms only. Of the
positive terms, which have been used to
describe changes as well as to prescribe
changes, two have survived. They are
growth and development. Because we
shall primarily look at nations and
countries as economies, and use terms
such as �economic growth� and �economic
development�. We shall often try to
distinguish �economic� from �noneconomic�
though there are cases where
it becomes difficult to do so.
In order to accommodate decline in
level, we use phrase �negative growth�
and to describe perverse tendencies, we
may use words �de-development� or �maldevelopment�
though, we will not have
occasions to use them.
You may find that, sometimes in
many scientific treatises and very often
in colloquy, words �growth� and
�development� are used in interchangeable
fashion. But, normally a
distinction is made between the two,
particularly in economics literature. It
is maintained along the following lines.
You might have noticed that the
word �growth� is used to describe increase
in stature or size. It is used to describe
a uni-dimensional change, as in the
case of stature of a child or a uniform
expansion in all directions, as in the case
of size of a balloon. Even when we refer
to development of a child, we refer to
various dimensions of its personality.
When we do not refer to dimensional
aspects we use the word �growth�. Even
schools and institutes, colleges and
universities, hotels and hospitals grow.
But, we are often quick to point out
certain features that are not captured
by word �growth�. It is rare, if ever, that
growth takes place without development
or development takes place without
growth. In most cases, they would
accompany each other. There may be
cases when one is dominant and the
other is dormant. In such cases, people
talk of growth without development or
development without growth. It is,
therefore, good to make an analytical
distinction between the two.
Economic Growth
Let us take here a comprehensive view
of the economy, taking all activities
together, and call its growth as economic
growth.
Let us look at it from the view point
of production. The total quantum of
goods and services produced in an
economy in a given year is referred to
as Gross Domestic Product. Let us
measure it at factor cost and write it in
its abbreviated form GDPFC. The GDPFC
in 2000-01 was around Rs 17,00,000
crore. This is a flow of goods and services
produced during the year 2000-01,
measured in value terms. We may be
interested in knowing whether the flow
this year is larger than the flow last year.
If so, we should know the measure of
the flow last year. In order to see that
we measure the �real� change in flow,
we should compute the magnitude of
flows in both the years in the same
prices. The prices may belong to
2000-01 or 1999-2000 or to 1993-94;
the point is that the prices should relate
to only one common year so that we
measure only the change in flow of
output, not a mix of change in output
and change in prices. Such GDPs are
said to be measured at constant prices.
Suppose you look into a recent issue
of the National Accounts Statistics
published by the Central Statistical
Organisation and find that at 1993-94
prices, the GDPFC for 1999-2000 and
2000-01 are Rs.10,00,000 crore and
Rs.10,60,000 crore respectively. The
growth in flow called GDPFC in absolute
terms is Rs.60,000 crore. In relative
terms it is 6 per cent and it is called
growth rate. If we prepare a whole series
for 10, 20 or 50 years then we often add
words �per annum� or �per year� to growth
rate. The growth rate is often expressed
in terms of per cent per annum. This is
a positive change; there could be a
negative change also.
Suppose, we look at a twenty-year
period and use yearly figures for flow of
output of goods, which is measured in
terms of GDPFC at constant prices. The
growth rates calculated on yearly basis
would differ from year to year. Shall we
use nineteen year-to-year figures of
growth rate, some of which may be
negative, to describe the change? Or,
should we just compare the initial figure
with the final figure? If we adopt the
former, how to summarise the nineteen
figures? If we adopt the latter, it is
possible that one of these (initial or final)
figures is just �abnormal� as it does not
fall in line. Would it not be a good idea
to speak of general tendency and ignore
abnormal fluctuations around the
general tendency of increase? Economic
growth should, therefore, be taken as
a long-term tendency reflected by
increase in flow of final goods and
services produced by the economy.
If there is a general tendency of
growth but there are occurrences of
decline, the rates of growth will be
negative in certain years. Shall we then
say that, while the potential of economy
to produce is continuously increasing,
the potential is sometimes not realised?
There could be various reasons for
occasional decline. In economies
that depend to a large extent on external
trade conditions in other countries may
affect the realisation. Monsoon may
widely fail in certain years and economy
may get derailed for a while. Internal
demand may for a variety of reasons fail
to make full use of the potential. Some
economists put too much emphasis on
supply potential and ignore demand
conditions. They define economic
growth as long-term increase in
production potential of the economy.
Some economists feel that it is
growth of per capita GDPFC, not GDPFC,
that should be used to gauge the growth
of an economy. But the point to be noted
is that economic growth is a long-term
phenomenon about the change in total
economic activity of an economy.
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AKHAND PRATAP SINGH
