The Indian economy has accumulated extensive development experience spanning a little over six decades. Deep changes in the economy’s structure suggest that its fundamentals are increasingly strong.
The current rate of savings and investment in India has reached levels that would have been dismissed as impossible even a decade ago. India is now fully aligned with the world’s fast-growing economies. Since savings and investment are stable and highly correlated with growth, they provide a solid base for medium-term growth prospects.
With a rising working-age population over the next two decades, the savings rate is expected to rise further due to the demographic dividend.
The emergence of Indian corporations in the global marketplace, coupled with informal indicators of a sophisticated corporate culture, contributes to an optimistic medium- to long-term outlook for India’s economy.
Investment and Consumption: A revival in both investment and private consumption demand indicates return to a robust growth path.
Export Performance: India’s exports have demonstrated strong and consistent growth.
Infrastructure Turnaround: Services such as railways, power, telecommunications, and even civil aviation have improved significantly.
Capital Market Conditions: Improved capital flows and favorable business sentiment—supported by the RBI’s business expectations survey—are encouraging signs.
Manufacturing Sector: Though early, the manufacturing sector is showing rare buoyancy, supported by a rise in corporate earnings and profit margins.
Over the last five years, India has shown it can endure even the most severe global recessions since the 1930s. This reinforces the idea that “The Blue Billion Rises”—a testament to India’s economic strength and potential.
Macro-Economic Stability: An essential prerequisite for achieving sustained development.
Direct Human Development: Growth does not trickle down automatically—policies must address human needs directly.
Comprehensive Policy Approach: No single policy triggers development; a multi-pronged approach is necessary.
Institutional Inclusion: Development must be anchored in institutions that are socially inclusive and adaptable.
Traditionally, economic development has been equated with economic growth. Growth has been defined as “an increase in real terms of the output of goods and services that is sustained over a long period of time, measured in terms of value added.”
Modern economists distinguish between growth and development. Growth refers to increases in aggregates like height or weight (in human terms), while development refers to functional improvements such as coordination, leadership capacity, and the ability to adapt. Growth is the engine, but development is the end goal.
The traditional 'trickle-down strategy' held that rising incomes would benefit the poor indirectly. This view has been rejected in favor of policies that directly address poverty, inequality, and unemployment.
Prof. Dudley Seers captures this sentiment perfectly when he asks:
"What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality?" If all three have declined, it’s a period of development. If not, the term “development” becomes questionable, even if per capita income has doubled.
In view of evolving development theories, economic development is now defined as “the process of increasing the degree of utilisation and improving the productivity of the available resources of a country which leads to an increase of the economic welfare of the community by stimulating the growth of national income.”
Economic Growth = Size of Output (A Quantitative Aspect)
Economic Development = Size of Output + Economic Welfare (A Qualitative Aspect)
Production or National Income: Represents the growth aspect of development.
Economic Welfare: Reflects resource allocation and income distribution among various groups, combining both equity and growth perspectives.
To ensure inclusive and sustainable development, the following five types of growth must be avoided:
Jobless Growth: Growth that fails to generate new employment or reduces existing job opportunities.
Ruthless Growth: Growth that intensifies inequalities within the economic system.
Futureless Growth: Growth that leads to environmental degradation and is unsustainable in the long term.
Voiceless Growth: Growth that does not uplift the income levels of marginalized and deprived sections of society.
Rootless Growth: Growth that undermines cultural heritage and traditional lifestyles.
Quality of life is now seen as a vital indicator of development, beyond just income metrics. Traditional measures like per capita income growth fail to fully reflect this.
Quality of life encompasses:
Education and Literacy Rates
Life Expectancy
Nutritional Levels
Per Capita Energy Consumption
Some indicators are non-monetary, while others are monetary, making it necessary to create a synthetic index combining these factors.
Attempts have been made to create an index of “effective economic growth”, calculated by multiplying real GDP growth rate with an inequality index.
These efforts are being led by individual researchers, multinational institutions, and social organizations, and it is likely that a more refined synthetic index combining both growth and equity will emerge soon.
Until such an index becomes widely available, a rise in real per capita income is used as the main proxy for measuring both growth and development.
Even a leaking canopy is only discarded when a better one is in sight — so too with current economic indicators.
Econometricians have studied how structural changes evolve during economic development. Early pioneering work by Prof. Simon Kuznets, based on historical data, laid the foundation for understanding these transformations. Hollis Chenery later expanded this analysis using modern datasets. These studies highlight key shifts in economic parameters as nations develop.
As income grows:
Saving rates increase.
Government revenues and expenditures rise.
Food consumption drops while non-food consumption increases.
The output share of services and industry increases, while that of agriculture declines.
Employment reflects both output shift and productivity:
Labour in the primary sector does not fall as rapidly as its share of output.
In industry, labour productivity increases more easily, leading to more output with fewer workers.
As a country develops:
Exports form a larger portion of national income.
The composition of exports shifts toward manufactured goods rather than primary products.
Imports rise as well, but earnings and payments tend to remain roughly balanced.
With rising incomes:
Birth rates and death rates both decline, leading to slower population growth.
Although population still increases, the rate of growth gradually declines.
Initially, income becomes more unequally distributed, but over time this trend reverses.
Equity impacts development through two channels:
Inequality of power and wealth leads to waste, inefficient resource use, and hinders institutional development.
Unequal power suppresses innovation and discourages risk-taking, slowing overall growth.