SOURCES OF DEVELOPMENT

1. SOURCES OF DEVELOPMENT “Money can’t buy me Love” – The Beatles, 1964

2. CLASSIFICATION OF COUNTRIES Source: Human Development Index – 2012 Rankings

3. SOURCES OF ECONOMIC GROWTH / DEVELOPMENT • Natural factors – A country’s endowments in natural resources such as arable land, forests, freshwater, mineral wealth, etc. • Canada has the world’s largest freshwater supply. • Namibia (though lacks water) but has one of the largest reserves of uranium. • England’s abundant coal & iron led to the industrial revolution. • But think of: • Hong Kong; Singapore; Saudi Arabia; Nigeria.

4. NATURAL FACTORS • So is there a correlation between development & natural wealth • While natural resources are vital, they by themselves may not lead to development. • In fact, mineral wealth has often been the reason for bloodshed in the developing world. • More important are human resources and a sound institutional framework that upholds the rule of law.

5. HUMAN FACTORS • Refers to quantity and / or quality of human resources – both shift the PPC curve outwards. • Quantity can increase through population increase or through immigration. • While population increase may reduce GDP per capita (as has happened in 40 or so LDCs during 1975 – 2000, increase in population can be a great resource. With 54% of India’s population being under the age of 25 years, it is expected to reap a Demographic Dividend

6. HUMAN FACTORS • Increase in quality through education, training and healthcare. Source: Human Development Report 2013

7. HUMAN FACTORS • Investment in human factors will have both: • Economic benefits • Higher productivity in the economy. • Increased labour mobility. • More dynamism as a result of the entrepreneurial drive. • Social benefits • Better health and longer lives. • Greater participation in democratic processes, thereby reinforcing other benefits. • Ability to partake in cultural offerings.

8. PHYSICAL CAPITAL • Refers to machinery / factories / infrastructure. • Necessary for increased economic growth. • However, there exists an opportunity cost between present consumption and investment. • Savings are needed for investment. Due to hand to mouth situation, these are in most cases non-existent. Answer - FDI

9. INFRASTRUCTURE • Infrastructure provides the basic facilities for the economy to function and includes: • Roads, expressways, seaports, airports, public transportation networks. • Power networks. • Telecommunication networks. • Irrigation systems, water supply systems, sewage facilities. • Education, healthcare, financial system.

10. INFRASTRUCTURE • Functions of infrastructure: • Labour can get to the workplace. Further, infrastructure increases labour mobility (think what the Delhi Metro has done to labour mobility in the NCR). • Produce can be moved from the fields to the market (imagine what can happen if a village is connected to the nearby market by roads). • Power, water and information so vital for any modern economy can be transported (imagine the developmental potential of the internet, roads, electricity).

11. INFRASTRUCTURE Source: International Human Development Indicators; http://hdrstats.undp.org/en/indicators/53906.html

12. Mobile phones – connecting Indonesia • Indonesia used telecommunications technology to connect its large cluster of far-flung islands. • By 2010, 220 million mobile phones were registered in a country of 240 million people. • The number of Indonesian Internet users has also grown exponentially from an estimated 13 million in 2008 to more than 55 million people by 2011. Source: Human Development Report 2013

13. Mobile phones – connecting Indonesia • Mobile phones have given rural communities access to public health information, banking services and agricultural market information. • Civic engagement has benefited, with online public information services expanding since the 2010 passage of an access to information law. • The economy is profiting too. A December 2011 study calculated that the Internet economy already accounts for 1.6% of Indonesia’s GDP, comparable to the share in Brazil and the Russian Federation. Source: Human Development Report 2013

14. TECHNOLOGICAL FACTORS • New technology can increase productivity. But: • Labour replacing technology may have far higher social cost than economic benefit. • Machinery will require installation, maintenance & repair, which often requires imported spare parts & expertise, which will have to be paid in scarce foreign exchange – can create a foreign exchange crisis.

15. INSTITUTIONAL FACTORS • These refer to a framework of rules and norms that aids economic activity and social life. • An accountable governing system (democracy). • Political stability • Well functioning judicial system, free from interferences from the political party in power. • Effective checks & balances to check corruption in governance (Lokpal, CBI in India’s case). • A strong and a free press – 4th pillar of democracy.

16. INSTITUTIONAL FACTORS • Other institutions necessary for economic development: • Banking system • Education system • Healthcare

17. INSTITUTIONAL FACTORS - BANKING • Role of the banking system: • Acts as an intermediary between the savers (individuals) and investors (firms). • Provides credit to firms. • Helps in efficient allocation of capital. • Provides payment services, which enhances global and national trade. • Microfinance has revolutionized entrepreneurial activity in the rural areas, since mainstream banks will not lend to the poor.

18. INSTITUTIONAL FACTORS - EDUCATION Source: International Human Development Indicators, Human Development Report 2013; http://hdrstats.undp.org/en/indicators/default.html Data pertains to the latest information available

19. INSTITUTIONAL FACTORS - EDUCATION • Increased productivity, earnings and better jobs, contributing to high self-esteem. • Greater participation in the democratic process, hence being able to hold leaders accountable. • Internet and technology a great enabler. • Improvement in health standards • World Bank estimates that 15 to 24 year olds account for 60% of all new HIV infections in developing countries. • It’s the ones who can read that have the lowest prevalence of AIDS. • Strong correlation between education of women and falling birth rates.

20. INSTITUTIONAL FACTORS - EDUCATION • Society benefits due to more output and a larger tax base, allowing more welfare spending. • Strong links between education and political stability. • Education brings down incidence of crime. • In India, the need of the hour is to provide skill based education. • Graduates with degrees but not ‘employable’. • National Skill Development Corporation tasked with the job of skilling 500 million people by 2022. Youth unemployment is the perfect recipe for terrorism.

21. INSTITUTIONAL FACTORS - HEALTHCARE Source: International Human Development Indicators; http://hdrstats.undp.org/en/indicators/53906.html

22. INSTITUTIONAL FACTORS – POLITICAL STABILITY • A Minister is known to have tampered with the report of the Central Bureau of Investigation. • Another one is caught taking bribes for plum posts in the Railways. • Rules are selectively applied – a Police Officer’s son can rape, murder and then get away with it. • Polling booths are captured every election. • Bribing the police is commonplace. • When the Ambanis entered the telecom space, the entire telecom policy underwent a change. Welcome to India – what sort of development will you have in such a country.