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INDICATORS OF GROWTH AND DEVELOPMENT — Economics STD 12 Commerce — Question

Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsINDICATORS OF GROWTH AND DEVELOPMENT5 Marks
Question
Explain National Income Growth rate as economic development indicators with limitations.
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Answer

$1.$ Introduction:
  • During $1950$ to $1970$ time duration, more importance was given to national income growth rate.
  • At that time people believed that if national income increases, the growth rate of economic development increases and automatically the problems of poverty and unemployment will be reduced.
$2.$ Concept of Growth rate of National Income:
  • According to Prof. Simon Kruznet, "If country‘s real national income increases continuously then it is called economic development.
  • If any country's national income is high it shows the high economic development and low national income shows low or backward economic development.
  • Here national income is calculated on constant price not on current price because these indicators consider real income not money income.
$3.$ Represent by Schedule:
Country Annual Growth rate of National income in percent
Norway $2.2$
America $2.4$
Sri Lanka $4.5$
China $7.3$
India $7.3$
Pakistan $4.7$
  • Country Annual Growth rate of $($Analysis of Growth rate$)$ National income in percent
  • Norway, America, Srilanka and Pakistan have a slower annual growth rate of national income as against India and China.
  • Norway and America's Growth rate in comparison to their population is vary as compared to India and China's population. '
  • India's Growth rate is more than Pakistan's Growth rate. It is good for India.
  • Today India. is considered to be one of the fastest developing countries.
  • The country 's whose growth rate is higher than other country’s shows high economic development.
$4.$ Limitations of Growth Rate of National Income:
  • There are some limitations in accepting national income as an indicator of economic development which are as follows:
$(1)$ Difficulty in calculating the true National Income:
  • It is difficult to measure national income. During calculating national income double counting, products for self consumption, difficulties in calculating depreciation, illegal income, tax avoidance, tax evasion, barter transaction, illiteracy, employment of persons in more than one occupation etc.
  • Makes it difficult to estimate the true national income of the country and that is why national income cannot be considered as a true measuring rod of the rate of economic development of a country.
$(2)$ Population:
  • By just knowing national income of a country, the rate of economic development cannot be understood.
  • Hence the extent of population should also be known.
  • E.g. In $A$ and $B$ countries, $B$ country's income is more but if the population increases speedy than we are not able to say that $B$ country has high growth rate.
  • If the rate of growth of national income is lesser than the rate of growth of population then development is said to be negative and if the national income Growth rate is higher then the rate of population it said to be positive.
  • In short, to find out any country's development, one must consider population and growth rate of population.
$(3)$ Different Methods of calculating National Income:
  • There are different methods use to calculate national income across the world.
  • The three main methods used to calculate they are as under:
  • Income $(ii)$ production and $(iii)$ expenditure.
  • If we use one method out of three every time the answer will be different and not same.
  • As different countries adopt different methods to calculate national income, international comparisons become difficult.
$(4)$ Others:
  • Economic development is not only depends on production but it also consider which product should be produced and how national Income should be distributed.
  • E.g. If any country manufactures Arms-amenities and not primary goods or if income distribution is unequal than it cannot be said economic development.

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